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Smart Hotel Renovation Strategies

Smart Hotel Renovation Strategies

From the days of the Gold Rush to the turn of the 20th century, Chinese and Italian immigrants caught fish and Dungeness crabs at Meiggs’ Wharf in San Francisco to eke out a living. The Best Western Plus Tuscan Inn is situated at the original endpoint of this historic landing—long since transformed into a section of the larger tourist-filled Fisherman’s Wharf area. When Walnut Hill Group purchased the property in February 2011, the real estate investment company planned substantial renovations to bring the hotel up to date and reposition it in the marketplace. They enlisted the help of an all-local team for the project, including North Beach historian Al Baccari, designer Tamara Sypult of Interior Design Workshop, construction manager Joe Erickson of Cooper Riley, and builder Michael Angotti of Angotti and Reilly, to create an authentic Fisherman’s Wharf experience for guests.

“In terms of specific goals, the renovation focused on those areas that would impact the guest experience the most,” says Stephen Yang, one of Walnut Hill’s founding managing principals. To provide an escape from the hustle and bustle of North Point Street, they warmed up the porte-cochere with heavy curtains and chandeliers so guests would feel like they’re walking into a sanctuary. The lobby was completely transformed in the spring of 2012 with new carpet, tile, furniture, and lighting. Now, guests can plug in mobile devices at a communal table or cozy up by the fireplace with a glass of wine. They traded in the restaurant’s white tablecloths for reclaimed wood, a new paint palette, and zinc countertop bar with triple the amount of seating. A manager-hosted wine reception each evening helps pull more guests into Café Pescatore.

The hotel, under the helm of general manager Jan Misch, is now receiving an average daily rate penetration of 105 to 110 percent, up from 90 to 95 percent, and its TripAdvisor ranking for the city of San Francisco has jumped from 60 at the beginning of 2012, to 26—the highest of any Wharf hotel. The renovation not only improved the property’s earnings, it also gave it broader appeal. Rather than solely relying on wholesale business as a key component of its distribution, the Tuscan now has a better chance of capturing younger, more discerning guests booking directly with the hotel or Best Western.

The second wave of renovations, the 221 guestrooms, began in January. The more labor-intensive work, such as installing new baseboards, wallpaper, and lighting, was completed last year. The next step is changing out the beds, headboards, and furniture so all guestrooms can be fully transformed by the spring.

Renovation of key areas, such as building exteriors, lobbies and breakfast rooms, and guestrooms, is the main focus behind Best Western International’s Design Excellence Initiative. Ron Pohl, Best Western’s senior vice president of brand management and member services, says the program is a revenue management strategy. “We recognized the impact design trends can have on the guests’ decision to buy and their value perception. Spend the right amount of money, in the right places, to properly position the hotel in the marketplace and you will increase revenues and profits.”

The company created business cases based on complete and partial renovation of these high impact spaces. “We measured the revenue impact, financial costs of a renovation, and customer satisfaction and the results were overwhelmingly positive,” Pohl says. “Every hotel is unique and different and therefore this is not a boilerplate approach. We are working with each individual hotel to determine the proper position in the market for both short ROI and long-term asset value.”

As the U.S. lodging industry continues to recover, more hotel owners are in a better financial position to invest in property improvements with hopes of raising rates and boosting profits. A September 2012 trend analysis report by Bjorn Hanson, divisional dean of the Preston Robert Tisch Center for Hospitality, Tourism and Sports Management at New York University, revealed that U.S. lodging industry capital expenditures for existing hotels are accelerating. The report estimated that hoteliers would spend approximately $5 billion in 2012, up from $3.75 billion in 2011 and $2.7 billion in 2010.

Best Western owners are no exception. At the brand’s Product Showcase in October, held in conjunction with the annual North American convention, members spent nearly $20 million with hospitality suppliers to update their properties. Although hotel owners are pouring more money into property improvements, they are being more selective with how and where they spend it. Smart renovations can help owners stay within their financial means while getting the biggest bang for their buck.

Spend money, make money
In tracking Best Western property redevelopment and conversions, the company has found that guestroom and public space renovations bring in an average of 23 percent in incremental revenue per year and guest satisfaction scores increase 16 percent when a room is completely overhauled. “There is no better incentive for owners to renovate than great ROI,” says Amy Hulbert, Best Western’s managing director of design.

To set the Design Excellence program in motion, designers and regional service managers began Best Western property visits in April of 2012, with a goal of issuing improvement plans (PIPs) to all properties in North America by the end of 2016. That’s more than 400 properties a year for a total of 2,200 hotels. The program also will help achieve a clearer distinction between the brand’s descriptors—Best Western, Plus, and Premier. “We know we’re going to inspire more people to be excited about the program if they understand we’re targeting a return for them,” Hulbert says. “We tell them you need to spend a little bit of money to make a little bit of money.” On top of this initiative, there are basic requirements due in 2014 for all properties that will provide a foundation for consistency and quality.

Sales in Best Western design packages have jumped significantly as owners embark on renovations. Hulbert says the total number of guestroom packages sold in the first two months of 2012 was more than Best Western sold in all of 2011. More recently, the company introduced public space packages, including lobbies, elevators, corridors, meeting spaces, business centers, and restrooms, that are already starting to achieve critical mass.

The design services team, a full-service interior design firm within Best Western, works with about 150 properties each year on contract projects, and that number is growing. “Those contracts can be as small as selecting carpet and lighting for the corridors, or it could be a complete renovation,” Hulbert says. At the end of 2012, the team had about $79,000 under contract specifically for Design Excellence properties.

Hulbert echoes the importance of targeting high impact areas. If a property isn’t appealing from the outside, or guests check in only to discover an outdated lobby, they may not give the hotel a chance. “Well-designed guestrooms are, for the most part, cost of entry,” Hulbert says.

Almost all properties Best Western’s design team visited in 2012 have exterior work to complete. Simple things like paint schemes can make a big impact. “Curb appeal is critical,” she says. “In many cases, if the exterior isn’t appealing enough, even if the guestrooms and public areas are renovated, the guest might not even give you the choice of redeeming yourself. They may just not come in.”

Best Western is also focusing on top-of-bed requirements, including sheets, duvets, throws, and decorative elements. “To have a bed that has a perception of being clean and fresh and up to date from an aesthetic standpoint is a really a nice element to have impacted the whole brand on,” Hulbert says.

To keep up with the social lobby trend, Best Western is encouraging owners to maximize square footage by combining their breakfast and lobby areas. “By using community tables and lounge seating that’s functional for people to work and socialize throughout the day, instead of just during the breakfast meal period, owners can keep that area active.”

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