For US developers, hotels were missing piece in mixed-use projects
By inserting hotels into such developments, they are able to generate more pedestrian traffic for retail outlets
When North American Properties drew up plans for a luxury hotel at Avalon, its $1 billion (Dh3.67 billion), 86-acre housing, office, restaurant and shopping project in the Atlanta suburb of Alpharetta, the developer wanted to reinforce the enclave’s stature as a Main Street destination with white-glove service.
To extend Avalon’s “living room” experience to the hotel, the developer designed a homey lobby and lounge and a South City Kitchen restaurant to entice locals as well as travellers.
And hotel guests can use Avalon’s amenities as part of their stay, including ordering room service from restaurants or visiting spas and fitness clubs.
So far, bookings at the 330room Hotel at Avalon have not disappointed its developer.
Even before opening in January, the $112 million project, which includes 44,000 square feet of meeting space in the Alpharetta Conference Centre, had booked 17,500 room nights and 175 events.
The average daily room rate is about 50 per cent higher than the rate in the broader Alpharetta market, which was $116.39 in the first quarter this year, according to the hospitality researcher STR.
Outstripping projections
“We’ve been astounded by the pace of bookings,” said Mark Toro, a managing partner in the Atlanta office of North American Properties, which teamed up with the Stormont Hospitality Group and the city of Alpharetta on the hotel and conference centre.
“The hotel’s performance has far outstripped projections.”
The Hotel at Avalon’s good fortune mirrors the hospitality industry in the US. According to STR, revenue per available room, a key lodging profitability metric, has grown for eight years straight. But the hotel’s early solid performance also demonstrates why hotels are frequently landing in developments that combine retail and restaurants with housing or offices or both.
By inserting hotels into the mixed-use projects, developers are able to generate more pedestrian traffic for stores, said Tim Marvin, an executive vice-president at JLL’s hotels and hospitality group. That’s particularly important as brick-and-mortar retailers seek ways to remain relevant in the age of e-commerce.
However, unfamiliarity with how hotels operate can hinder chances for success. Stores or office tenants may lease space for several years, for example, which can provide developers with rental income during challenging economic times. But hotels rent out rooms daily, which makes them more susceptible to downswings.
Hotel brands typically require landlords to spruce up the property every few years, said Andrea Olshan, chief executive of Olshan Properties, a developer based in New York.
Increased complexity, risk
What’s more, enmeshing hotels in a mixed-use project only increases their complexity and risk.
Competition from newer hotels is another threat, especially around successful and longstanding developments like Easton Town Centre in Columbus, Ohio, where Olshan Properties owns three hotels.
In fact, given the retail world’s cautious approach to expansion amid store bankruptcies, mall closures and the intrusion of e-commerce, Andrea Olshan worries less about retail development and more about new hotel construction.
“If you have a successful mixed-use centre with lots of apparel stores, you’ll attract tenants and it’s less likely that a shopping centre will be built near you,” said Olshan, whose firm expects to open a hotel and retail development in Boston’s Haymarket district this year.
“But with hotels, we’re seeing more and more ankle biters.”
Despite the challenges, developers are finding more reasons to incorporate hotels in their projects.
As mixed-use developments become destinations for leisure and business travellers, they are likewise becoming a preferred destination for hotel investors, said Gary Isenberg, president of asset and property management services for LW Hospitality Advisors in New York.
“Having all those amenities nearby makes you more of a value proposition when the traveller is choosing your hotel versus one on the side of a highway,” he said.