Lodging Magazine....

RENOVATIONS FILL ROOMS:

HOW HOTELS ARE SPRUCING UP TO KEEP UP

May the newest (or newest-looking) hotel win! Today's economy and competitiveness have led to a big slowdown in new hotel development and a major increase in property renovation. Hotel industry officials are simply learning that renovations fill rooms.

Since 1987, more money has been spent on renovating and remodeling than on new construction. Forbes magazine research found the ratio of new construction to renovation has moved from 60-to-40 in the 80s to 40-to-60 in the 90s. They predicted a further shift to 20-to-80 by the end of the decade.

"We have found renovation to be a key factor in our success and growth," says Dennis Rudloff, vice president of product service with Choice Hotels International. "We've had a real push to upgrade properties and believe it's a key to success in today's market."

The current overcapacity of hotel rooms has led to intense competition in all segments of the market. This means many small and large hotel companies have to spruce up to keep up.

Hoteliers can learn much from the renovation decisions made by other companies. Successful renovations can make a hotel more attractive, more modern, targeted to specific segments, or simply improved enough to keep up with the property down the street. The newest-looking hotel will win in the 90s.

THE BASICS

There couldn't be a better time to renovate. New hotel construction is still depressed, decreasing competition from new properties. Lower occupancy makes it easier to pull rooms off the market for renovations. Franchisors and parent companies are also much more willing to finance and support renovations. Thus, let the renovations begin.

There are many sound reasons for renovating, including: modernization to attract new and repeat individual guests and groups; meeting franchise requirements; improving the rating of the hotel; meeting new governmental requirements; and improving the salability of the property.

These renovations can range from small and low-cost improvements and changes to major multi-million dollar refurbishments. Each decision should be based on the ability of the money expended to increase revenue in some way, at some time.

At the 12th Annual International Hospitality Industry Investment Conference, University of Massachusetts professors presented "An Approach to Financial Modeling and Analysis for Renovation of Hotel Properties." Their research, findings, and resulting renovation model proved that refurbishment can make money for hotels.

A model can be extremely helpful in analyzing the potential impacts of renovation work. Feasibility models for renovations are typically more accurate than those for new property developments. The renovator has generally better market information and historical income and operating data, which can help with estimates.

The purpose of renovation work is to fill rooms. By analyzing detailed costs of the renovation, multi-year operating pro-formas (with cash flow estimates), ROI information, and changing variables, you can predict the profit potential of renovations.

The economic model developed by the Massachusetts professors combines current operation statistics and schedules of renovation costs to predict the outcome of different levels of revenue and different expenditures on costs of renovation. It provides a perfect base for reasonable decisions concerning renovation projects.

Key pre- and post-renovation variables include: rooms available, average room rate, occupancy, daily turnover, F&B sales, interest rates involved, and detailed renovation costs. These figures can then be used to predict the outcome of renovation and are commonly used to continue the renovation craze of the 90s.HOJO ENHANCEMENTS

Enhancing a property's look enhances profits and Howard Johnson Lodges are heeding this rule. A new contemporary look for HoJo is appearing across the country, as franchisees take advantage of the Gatelodge Image Enhancement and Remodeling Rebate program offered by Howard Johnson Franchise Systems.

Howard Johnson, one of the most enduring hospitality brands in the world, updated its interiors and signs in the 80s. Now, HoJo is enhancing the exteriors. Eric Pfeffer, president and COO of Howard Johnson Franchise Systems, says, "Howard Johnson has become the eighth largest brand in the country during the past two years, as we revitalize the brand and restore it to its rightful place in the industry. The Gatelodge Enhancement Program is a shining example of how we are taking the Howard Johnson brand into the 90s and the next century.

More than 20 Howard Johnson properties have alreday taken advantage of the program. Two exterior remodeling designs have been developed, one costing approximately $31,000 to $36,000 and the other running $38,000 to $44,000, depending on location, condition of the property, and scope of work. Howard Johnson Franchise Systems provides marketing fee credits of up to $8,000 for the first type of design and up to $15,000 for the second type.

"The investment credits demonstrate our commitment to property improvement," says Mr. Pfeffer. "Franchisees, guests, and the Howard Johnson system all benefit from this system."

The new program works. "I never would have imagined the direct and rapid impact this renovation could bring," says Spiro Pappas, general manager of the Howard Johnson Lodge in Middletown, New Jersey. "The walk-in traffic has increased by as much as 15 percent."

The Howard Johnson system has also added many more contemporary properties recently, emphasizing the trend that the "new" hotel wins. "The sleeping giant has truly awakened," says Mr. Pfeffer.

CHOICE OPERATORS CHOOSE RENOVATION

Choice Hotels International can be viewed as a microcosm of the hotel industry. Since 1980, Choice Hotels has grown into a franchising giant, with seven distinct brands and more than 2,885 hotels open and under development in 30 countries. This makes Choice the largest franchise hotel company in the world, in number of hotels.

"Against the backdrop of industry gloom and doom, Choice Hotels International continued to boom in 1992 with record growth, sales, and profits," says Robert C. Hazard, chairman and CEO of Choice. "This was the result of better marketing, more cost-effective reservations, and improvements on product quality and guest satisfaction."

Improvements on product quality and guest satisfaction are direct results of renovation. Choice's Product and Service Division announced significant new discount programs for Choice Licensees in 1992, including a complete bed, bath, and exterior program to help older properties with a complete room package for only $2,500. They are also establishing several other price points for this program.

In addition to these savings, Choice also arranged a special financing program in 1992 for hoteliers interested in refurbishing. They help hoteliers with extensive assistance and experience, allowing the renovation project to reap big rewards.

Almost 70% of Choice's recent growth has come from conversions--existing independent or franchise hotels switching to Choice brands. This often leads to extensive renovations--and filled rooms.

For instance, the new Clarion Hotel and Suites in Rockville, Maryland, formerly the Howard Johnson Hotel, recently announced the completion of a $2 million renovation and remodeling project. The 164-room property remodeled the guest rooms, lobby, business center, and meeting spaces. They also reopened the restaurant and lounge under a new name, as well as adding a fitness center to the list of amenities. All of this work led to a new look, a new name, and filled rooms.

THOMAS JEFFERSON WOULD BE PROUD

Richmond, Virginia's historic Jefferson Hotel will celebrate its 100th birthday in 1995. Combined with the recent celebration surrounding the 250th anniversary of Thomas Jefferson's birth, the hotel has undergone major renovation.

This legendary hotel determined it needed to update the property to stay competitive and be more profitable. The former Jefferson Sheraton received a $34 million renovation in the 80s, before being purchased by Historic Hotels of Virginia in 1991 for $13.2 million.

Prem Devadas says the hotel renovated the property to welcome guests during the Jefferson birthday celebration, the upcoming Fortune 500 Forum (bringing about 200 top CEOs to the hotel, and the 100th anniversary of the hotel. But another big reason is to increase their rating to five-star status with the Mobil Travel Guide and a five-diamond rating with AAA.

The $3 million renovation project includes refurbishing all 274 hotel guest rooms and suites, as well as a making the elegant main public areas more historically accurate and attractive. In pursuit of the new rankings, the Jefferson is increasing emphasis on service and new amenities, including wall-mounted hair dryers, terry-cloth bath robes, scales, lighted closets, electronic locks, and 24-hour room service.

"The hotel engaged the services of Copeland Krieger Associates, an interior architecture and design firm from Washington, D.C.," says Mr. Davadas. "The firm specializes in hotel, restaurant, and office projects and has completed design work for over 100 hotels in Washington and throughout the country."

The renovation has led to much publicity, higher occupancy, more meetings, and increased F&B business. They hope it will soon lead to increased ratings.

JAMAICA GRANDNESS

A $23 million, year-long renovation project recently transformed two well-known Jamaica hotels into one modern and competitive property. The renovation and marriage of the Ramada Mallards Beach Resort and the Americana Beach Resort into the "new" Jamaica Grand has led to higher occupancy rates and a bright future for what is now Jamaica's largest resort.

The resort now offers 720 rooms, all of which were remodeled or cosmetically improved. A romantic architectural marriage of the two properties was designed with a Victorian flair, accented by crisp white fretwork and a tropical color palette that is typical to Jamaican and Caribbean architecture. The two hotel towers are joined together by an open-air reception area.

The Jamaica Grande is operated by Hong Kong-based Ramada International Hotels & Resorts, which owns the Ramada and Ramada Renaissance brands worldwide. "We're happy to confirm that the final phase of the renovation and construction was completed as planned," says the resort's general manager, Mark Redt. "More importantly we're pleased that our hotel has continued, and will continue, to provide our guests with the best in service, amenities, and attention during our growing period."

JUST "NEW" IT

Hoteliers across the globe and spectrum have learned that renovation pays. Whether it's a small and specific project or a major overhaul, renovation has become the key to succeeding in the 90s. May the newest (or newest-looking) hotel win!