Bull Market: Hotel Renovations and Conversions

In an election year, with political pundits offering competing ideas on how to reboot the country's struggling construction industry, one segment seems to be finding its own way out of the doldrums: hotels. In fact, according to a report released last week by Hotel Management, which surveyed 40 of the largest construction companies in the U.S., property renovations in particular are flourishing this year, outpacing new-build projects by close to 50 percent. And that scenario shows no sign of slowing in 2013.

Driving this multimillion-dollar capital investment are brand conversions and the push to increase room rates by leveraging brand standards. In the last several weeks alone, several major overhauls of properties have been completed or announced. Just this week, Annapolis, Md.-based Chesapeake Lodging Trust, which purchased the 520-room W Chicago Lakeshore from Starwood Hotels & Resorts Worldwide for $126 million, announced it would begin a $30 million to $35 million renovation of that hotel beginning in the fourth quarter of 2013, including a remodeling of the property's 12,000 square feet of meeting space. "This is an outstanding piece of real estate with a truly unique market position, and through this renovation program we will ascertain the true potential of the W Lakeshore," said James Francis, president and CEO of Chesapeake, in announcing the sale (and noting that the hotel would continue to fly the W flag).

It's not the only Starwood property getting an overhaul. The 1,100-room Sheraton New Orleans Hotel is well into a much-needed $45 million renovation that is part of the chain's $6 billion brandwide revitalization. The property's 100,000 square feet of meeting space will be completely revamped as part of the project, which is slated to be completed by year-end 2013. Also dramatically overhauling its meeting space in recent weeks was the 763-room DoubleTree by Hilton, Metropolitan New York City, which completed a $25 million renovation. And just last week, Marriott International unveiled a five-year, $18 million transformation of the 1,100-room Boston Marriott Copley Plaza, which includes a reconfiguration of the hotel's 70,000 square feet of meeting space.

Next week, Starwood will take the wraps off its 252-room Aloft San Francisco Airport. A former Clarion property, it is the first conversion in what has become the company's strategy to grow that brand; interestingly, one guest room, closed to the public, is being left in its "before" state to serve as an in-house benchmark for change. "We've developed a conversion-friendly strategy," said Simon Turner, president of global development for Starwood, adding, "We believe that many well-located, older hotels in metro markets represent enormous untapped repositioning potential." Other conversions in the brand's global pipeline of 30, set to open in 2013, include the 150-room Aloft Tucson University (a former Four Points by Sheraton), scheduled to open in the first half of next year, and the 118-room Aloft Orlando, which will have 5,000 square feet of meeting space, the most in the 60-member portfolio.