In 2021, Residential Real Estate Developers Are Finding New Success With Hotels – Forbes

The adage “location, location, location” still holds true, but some traditionally residential real estate developers are taking it to the next level as pandemic market trends make new hotel opportunities available. Condos, villas, homes and commercial real estate value ebbs and flows based on supply and demand. The pandemic is making hotel investment especially attractive for some developers.

Many see a hotel as a way to complement and enhance the residential commercial components of neighborhood projects. Others, often in tropical vacation destinations, may find that demand far outpaces supply for vacation real estate, even before Covid-19. Either way, hotels present a new world of challenges that may be unfamiliar to real estate companies such as average daily rate, occupancy levels, revenue per available room metrics and staffing issues.

The decision to enter the a new investment sector is not taken lightly. While most real estate companies looking into a hotel opt for a third party to run it, the inherent risk remains. Hotels are operating businesses that sit on top of a real estate investment. They require the know-how of an industry veteran to make them work.

According to Alvaro Acebal, director of operations at Beach Enclave in the Turks and Caicos, it is common to see hotel companies branch into real estate. He cites hotel brands like Ritz-Carlton, St. Regis, and W Hotels that operate residential components within or adjacent to some hotels. However, Acebal notes it is rare to see the reverse with real estate companies making their first move into building a hotel.

An April report from The Wall Street Journal pointed to a bounce back for hotel investors following a hard hit in 2020 due to the pandemic. In some cases, real estate companies are lured to the opportunity of buying distressed hotels (mostly due to the Covid-19 pandemic) and converting them to affordable housing, according to a recent CNBC report.

While many real estate investment projects started before Coronavirus even entered our everyday lexicon, industry fortunes are not entirely bleak. The growth can be market-specific with some officials in cities like New York even looking to curtail new hotel projects, according to The New York Times, while other destinations look to grow.

Acebal points out that in many markets, real estate companies turning to the hotel business can make a lot of sense. This type of leap of faith can drive success for more than just a hotel property or real estate company’s bottom line. It can infuse energy and demand into areas that once thrived on longer-term vacation stays or permanent home ownership. With hotels as an anchor, communities can develop and thrive. Here are some of the new hotels that are the result of residential real estate investors who are trying it out.

Kimpton Cottonwood Hotel, Omaha, Nebraska

The Blackstone District

When Matt Dwyer, principal of GreenSlate Development, began investing in the Blackstone District a few years ago, the mood around town was rather upbeat. The area, once a bit neglected, sits at the edge of the downtown core, and the coordinated effort to connect downtown with the many medical centers on the other side made sense.

Today, the Blackstone District teems with chic boutiques, yoga studios, coffee shops, restaurants, breweries and residential buildings. At the center of the neighborhood stood the old Blackstone Hotel, which had since become an office building. It made sense for Dwyer and his colleagues, who had previously only invested in residential real estate, to buy it and convert it into a showpiece hotel, now known as the Kimpton Cottonwood Hotel, part of InterContinental Hotels Group (IHG).

More than a century old, local residents have fond memories of attending social functions and important events at the hotel. Its rooftop Schimmel Ballroom, now popular with wedding events and boasting an outdoor terrace and chef’s herb garden, was where Richard Nixon announced his candidacy for president.

Restored to its former glamor, but with plenty of modern decor touches (including Kimpton freebie favorites like morning coffee, evening wine receptions and in-room yoga mats), The Cottonwood is abuzz with activity. Even its Committee Chophouse restaurant and Cottonwood Room bar draw locals to peruse historic photos of the neighborhood and hotel’s past.

“We decided to make an ad hoc pivot into hospitality because the building and its history offered a once in a lifetime opportunity to restore an iconic hotel in the city where we all were born and the neighborhood we have all worked so hard to create,” said Dwyer.

The Club at Beach Enclave Long Bay, Turks and Caicos

Providenciales

Beach Enclave’s swanky, oceanfront multi-bedroom villas are located in three different areas of Providenciales, the main island of the Turks and Caicos. Nearly 70% of its visitors arrive to the island by private plane to indulge in a vacation (or even an extended stay to work remotely). Since the villas, most of which have five bedrooms, must be bought as a bundle (rather than rented one by one), this is the kind of place where families or groups of friends travel together to escape the bustle of larger hotels.

Each villa comes with a swimming pool ringed by lounge chairs, an outdoor patio with dining area and grill, spacious living areas and fully-equipped kitchen with the services of a butler. A chef can also prepare meals on request, and breakfast is complimentary for all guests.

So popular is the collection of residences that repeat guests started to ask for more facilities so that they could stay on property, which is what led to the idea of building a hotel.

While Beach Enclave guests have access to tennis and basketball courts, 24-hour fitness centers and in-room spa services, many wanted more including the option to socialize outside of the villa.

Traditionally, the Turks and Caicos market has relied more on real estate and condominium-style hotels rather than typical resorts. That is changing, however, with new hotels like The Ritz-Carlton, Turks and Caicos opening this summer and a new hotel project, The Club at Beach Enclave Long Bay, with 24 rooms and eight residences featuring four bedrooms with the widest beach front on the islands coming next year.

The latter will be the first hotel project for Vasco Borges, the CEO and founder of Beach Enclave. When Borges left his finance career to pursue the private villa resort investment model, he tapped into a new interest for hospitality after he saw growing demand from existing clientele interested in bringing their family down on vacation with them.

Demand for the residences was instantly popular selling out within months, and a hotel seemed like a natural extension. According to Borges, both models provide an excellent experience, and his company is in conversations with developers elsewhere in the Caribbean to bring this model to other beachfront locations, especially those with convenient access to “main markets in North America.”

The Ray Hotel, Delray Beach, Florida

Delray Beach

When Craig Menin, CEO of Menin, a real estate company with residential and commercial properties, opened Delray Beach Market (the largest food hall in Florida) this year, his plan was simple. He wanted to invest in the continued development of the Delray Beach community and have a hand in driving its upmarket direction while filling a void where concepts (like the food hall) did not exist.

“As someone living in Delray Beach and someone who travels a lot, I saw that there was a hole in the market,” says Menin.

The Ray Hotel will be a part of that plan when it opens in September as a member of Curio Collection by Hilton. Menin wants to keep Delray Beach “less dense” and “low scale.” By going beyond residential and commercial projects and into the hotel sector, the company can drive the area’s design aesthetic and overall direction. Since Menin’s vast experience is in real estate development rather than operating hotels, it will rely on Clique Hospitality to manage the property.

“We want to maintain the history, the beauty and the charm that is Delray Beach, but also want to provide opportunities to enhance our urban beach town,” adds Menin.

That’s what an anchor hotel project can do for many communities, and these days, many new-to-hotel real estate companies are taking the reins to make that happen.