Adapting Historic Buildings into Hotels
By John Tess President & CEO, Heritage Consulting Group | October 2008
Recently, HVS International completed a nationwide study of over 120 historic hotel properties with a total of 27,935 rooms, comparing their operating performance against national averages. Their findings: Historic properties have outperformed national averages in both occupancy and average rate levels. This performance is particularly evident in superior revenue per available room levels.
HVS ascribes this result in part to the more affluent nature of the patrons of historic hotels. Of particular value is providing a hotel alternative to "cookie-cutter" lodging experiences, often supported with added value by leveraging the historic character of the property with unique interpretive programs. This perspective is supported by a Travel Industry Association of America 2003 market study that noted a general increase in the travelers' desire to experience cultural, art, historic and heritage activities. The study revealed that 81% of travels who took a trip away from home in 2002 included at least one such activity in their trip.
As if a strong and affluent demand is not enough, to further entice property developers toward heritage properties are tax incentives for redevelopment. At the federal level, investment tax credits may be secured for up to 20% of the total rehabilitation costs. This credit is frequently complemented by state tax credits of a comparable amount or alternative incentives such as a property tax abatement.
While certain property developers have entered this market place full throttle, many are hesitant or downright stand-offish. Much of the reason is unfamiliarity with the process or a fear of government review. The purpose of this article is to perhaps allay some of those fears and to offer some insights as to issue areas. With nearly three decades of experience, my company, Heritage Consulting, has worked with property owners on tax credit projects worth over $1 billion, and have been specifically involved in securing tax credits in the development of boutique historic hotels since the early 1980s.
In any redevelopment project, whether using federal or state historic preservation incentives, the measuring stick for any rehabilitation work is The Secretary of Interior's Standards for Rehabilitation. There are ten standards - somewhat general in definition - but overall focused on understanding why a building might be historic, on what the features are that reflect that unique sense of history, and how best to maintain them. On a simplified level, what the standards seek to accomplish is to preserve the very drama that a property developer might feel upon first seeing the site. Equally simple, the more visible a particular element, the important its treatment.
In seeking federal tax credits, the reviewer is the National Park Service. Their decisions are made in part based on recommendations from the State Historic Preservation Office, who also is responsible for any state tax credits or incentives. In both instances, the person actually doing the review is likely to have a background in architecture or history. And in both instances, the focus tends to be singular - the treatment of the character-defining features of the building.