To build or convert? That is the question facing hoteliers today as they scrutinize the economics of breaking ground or reworking existing assets amid the rising cost of debt and lingering uncertainty for the remainder of 2024.
The outlook for conversions in a pressured economy is strong. Both adaptive reuse and conversion projects allow developers to secure distressed assets for a fraction of the cost, giving new life to old buildings or tired brands and adding new characters to a region’s cast of hotels. Nevertheless, renovating an existing asset with aspirations of becoming a standout hotel is often more complicated than it sounds, and hoteliers must be educated in the process and have committed healthy contingencies before demolition begins.
A recent report from Lodging Econometrics found that while the development of new hotels was up in Q1 of this year, renovations and conversions remain the star of the show. Their data shows renovations and conversions have reached a record high of 2,041 projects and are on pace to continue throughout the year. This trend has been embraced by major brands such as Marriott, which is aiming to add nearly 100 hotels to its European portfolio by the end of 2026, primarily through conversion and adaptive reuse projects.
When executed well, these properties can be turned into destination-defining hotels. Whether the restoration of a heritage building in a downtown setting or the reimagining of a funky roadside motel, renovation projects without the proper planning can face challenges—they stall, run over budget, open with uneven execution, or all of the above. Hoteliers eyeing adaptive reuse projects must do their due diligence, over prepare and expect the unexpected.
Why Adaptive Reuse?
The allure of adaptive reuse is clear, but so are the challenges inherent in converting an existing property into a hotel. Vacant office buildings, large residences, multi-family assets and buildings with historic architecture are frequent targets for adaptive reuse projects thanks to their curb appeal, historical significance or ties to the local community.
Allure should not cloud decision making, because not all vacant buildings are created equal. As any seasoned developer knows, there is more to examine than the location and aesthetic of a property. Factors such as construction method, date and quality of previous renovations, and the availability of government subsidies should all be considered before making the leap. The viability of these projects hinges upon the ability to reconfigure the interiors and improve upon the present offerings. While adaptive reuse may not require a complete design from the ground up, a significant amount of legwork is still required to ensure your dream property will also make for a dream hotel. Carefully selecting and engaging a team of experts is critical to the success of an adaptive reuse project.
Why Convert?
Conversions are up among large hotel chains as independent hoteliers seek consistency by aligning themselves with brands while securing more leeway from lenders and new avenues for financing. According to Reuters, converted rooms accounted for 40 percent of organic room signings within Marriott International’s U.S.-based business in 2023. Similarly, successful branded hotels are increasingly choosing to drop their brand affiliations in favor of independent operations without additional oversight. In some instances, independent hotels can capitalize on upwards of $200 ADR growth by choosing to invest in their own unique brand as opposed to fitting within an established mold. The demand for unique, independent or soft-branded properties shows no signs of slowing and conversion opportunities are the perfect gateway.
To overcome some of the more common challenges inherent in pursuing a brand-to-brand or brand-to-independent conversion, developers must first do everything they can to understand the property they are working with. Where was it initially positioned? What ADR will justify the renovation expense? To consider a brand or explore independence? Who was the original target guest and how do they differ from a future guest? All of these answers will shape the development process, from the teams selected, to the amenities added (or removed) and any brand affiliation.
Navigating the Unexpected
A paramount truth in redevelopment is that hoteliers must engage with this process as early as possible to avoid unnecessary schedule delays or budgetary setbacks. They must give themselves time to understand the scope of any adaptive reuse or conversion and get clear on the feasibility and expense of said investment. The key to successful renovation projects is always a carefully selected team of experts who are engaged to assist the owners and developers in navigating the unpredictable process.
What does that team look like? It often begins with a seasoned owner’s representative and/or creative director, an architect with a team of engineers, tax credit consultants (if tax credits are being pursued), interior designers, a branding agency, if needed, and most importantly, a reputable contractor with experience in renovation projects.
Development costs continue to fluctuate across the industry as materials and labor availability remain subject to unexpected delays. Don’t let these challenges derail your property’s rebirth due to misplaced time management, a budget lacking a healthy contingency, or poorly selected vendor partners. Prepare for these challenges with purpose, and align your property with partners who believe in its vision and can contribute to shaping it.
The hospitality industry has long honored the history of travel, growing and adapting to meet the needs and desires of guests. The travelers of today place value on experiences over commodities, personal relationships over transactions and sustainability over the needless depletion of resources. Communities are pushing back against urban sprawl and over-development. Considering renovation and conversion of dated properties, or reinvigorating a historic building is not only an economical choice, but it is a socially responsible one, as well. We are entering a new era of inventive hotel conversions, and now is the time to create the unique hotels that will define our industry in the future.