Mr. Glincher

Hospitality Law

Legal Outlook: Renovation Time!

By Andrew Glincher, Office Managing Partner, Nixon Peabody LLP

Is it time to add onto the property, constructing new guest rooms, or a conference center, or recreational facilities, or a spa?

Are there relatively minor expenditures, short of new construction, that can add significant value?

As with other aspects of hotel development and management, knowledge of the marketplace, knowledge of your clientele and insight into your own positioning are crucial. For example, upscale isn't always the way to go. What if there is a new convention center? In a large city, with an abundance of luxury hotels within a short distance, perhaps a three-star hotel, offering convenience, accessibility and relatively low cost for business travelers and convention-goers, would be far better. You need to identify your customer and the demands of your location.

The big chains are all moving forward with efforts to make their clients more comfortable, whether through the installation of new beds, better sheets and towels, improved restaurants - many offering menus that accommodate the various diet trends we're seeing - and other aesthetic touches that make the traveler feel at home. Smaller, independent properties are going to have to follow suit if they want to compete and continue to attract loyal clients.

There's another trends hotels can take advantage of at relatively low cost as well. Technology is causing business to be mixed with pleasure more and more often. People traveling to a location mainly for business might extend their stay and invite their families to join them, if they knew there were facilities their families - and they -- could enjoy when not working. And leisure travelers find it easier to get away - more frequently and for longer periods - if they know they can easily stay connected to their office and business affairs.

Properties that are not traditional business hotels are now giving clients the ability to use high-speed wireless Internet connections in their rooms and throughout the hotel. Many are supplementing their business centers with banks of computers, installed at visible, central locations, so that clients passing by on their way to the pool or the restaurant can stop for a minute and check their e-mail.

Improvements like these do not require major expenditures and can produce excellent returns. But what about major projects - projects that require significant capital expenditures? When do those make sense? Here, a careful and detailed cost benefit analysis must be undertaken. If, for example, a large percentage of your clients are coming to conferences and other business meetings, you should consider how much additional time they spend in the hotel - if any. If you constructed a new addition containing a luxury spa and upscale retailers, would that result in more clients bringing spouses along? Would they stay for additional days after their business was concluded - to make a vacation of their trip? How many additional days would you have to sell over the course of each year to recoup your investment?

Many hotel owners and operators are now looking at not only renovating and upgrading their properties, but expanding through new construction (when there are not significant barriers to entry) in new locations. This is a good time to be considering those options. Investors are very interested in the hospitality market and capital is available for the right projects.

What are the right projects? Location and management are the keys. Will the hotel be located in an area that otherwise has high barriers to entry - perhaps an existing, but outmoded hotel in a community that has recently been rezoned to prevent other sites from being similarly developed. That one property could be either rehabbed or potentially demolished in favor of new construction (if zoning allows) without fear of a competitor opening up across the street.

Well capitalized owners with a solid track record are also looked upon more favorably by investors, who shy away from highly leveraged projects and want to know that the owner will be someone they can count on as market conditions change over time. We know the hospitality industry is cyclical. Successful management is constantly planning and looking to the future, researching the market, anticipating demand and investing the capital that's necessary to continually reach new customers, capture greater market share and improve occupancy and room rates.

Andrew Glincher specializes in the negotiation and resolution of business and real estate disputes. Mr. Glincher has represented developers and owners of retail centers, hotels, movie theatres, office and industrial buildings and parks, utilities, restaurants, subdivisions, apartment complexes, assisted living housing complexes, long-term care facilities and condominium projects. Mr. Glincher is admitted to practice in Massachusetts, the U.S. Court of Appeals, Third Circuit, the U.S. District Court, District of Massachusetts and the U.S. Tax Court. Mr. Glincher can be contacted at 617-345-1222 or aglincher@nixonpeabody.com Extended Bio...

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