Upcoming and Current Trends in Hotel Design

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Upcoming and Current Trends in Hotel Design

Brands like Marriott’s Moxy target the growing Millennial market in the Hotel Industry.

 

Well established hotel companies and investors are looking to stay ahead of the curve, and this is definitely the case when adapting to trends in the hotel industry.  In today’s hotel markets, Millennials are establishing themselves as a formidable force. With markedly different preferences than their older counterparts, hotel developers and investors are looking to cater to these younger travelers to ensure that they stay ahead of the curve. For many hotel flags, we are seeing significant changes in response to those preferences.

Good news for the hotel world – Millennials overall prefer to spend their money on experiences, rather than on material goods. Luckily for hotel investors, this means that hospitality is a great area of opportunity. The Millennial travel market is only going to grow more and more, and learning this generation’s preferences and how to appeal to them is essential for continued long-term success in the hotel industry. Here are some of the ways hotel’s are seeking to appeal to this group of travelers, and earn brand loyalty early on.

Interactive Social Media

Millennials are more tuned in to their devices than ever. As opposed to more traditional advertisements through commercials and print marketing, many of the most successful brands are turning to engaging their customers online. Marriott’s Moxy brand, for example, has established their own instagram account (@MoxyHotels), and encourage their guests to share pictures online using hashtags such as #AtTheMoxy. This social media wave is incredibly efficient – guest travelers who post and share their experiences at Moxy Hotels provide what is essentially free marketing. That extra boost in exposure to guests’ peers can build a rapport among Millennials as they begin to build loyalty to specific brands.

More technology

No surprise here. Going hand in hand with social media, capitalizing on technology and engaging with your customers is a major step that hotel developers need to compete with. Having wi-fi available for guests beyond just their rooms has become expected, rather than a luxury amenity. Many hotels are moving towards providing charging stations in the more communal areas of the hotel, or providing more USB charging ports in their rooms to accommodate mobile-friendly travelers. Even hotel rooms themselves are seeing an increase in the number of power outlets. Holiday Inn parent company IHG also recognized such patterns in their guest habits:

“At Holiday Inn, the first thing hotel guests can do upon entering a room is recharge their phones. When designing the new H4 guestroom, parent company InterContinental Hotels Group conducted focus groups and consumer testing to determine where to place power and USB outlets…One result is a ‘Welcome Nook,’ a place for guests to hang their coat, drop their keys, and plug in devices.”

Airbnb has developed a mobile app to  appeal to younger customers more than ever, and creating apps that facilitate check-in and check-out will give hotel brands an edge over their competition. Large companies such as Marriott already have apps that allow you to check-in to your room on your phone, and also incorporate other features such as allowing you to track and earn loyalty points. Creating these apps also offer an additional stream of revenue by opening up advertising opportunities on the app to nearby businesses seeking to appeal to Millennials and other customers as well.

Large Communal Spaces, but smaller rooms

With the increased emphasis on social media and communal experiences in general, hotel brands are seeking to develop hotel products with larger communal spaces. Larger lobbies, recreational rooms, and more open-design spaces. Some hotels, such as Hilton’s Tru brand, are now also designing their rooms smaller, with more efficiency. A hotel may remove their ironing boards and in-room bars in individual rooms in exchange for larger communal versions of them on each floor. Similar to the advantages of a dual-brand model, these design differences have the potential to save developers money, while also appealing to their younger customer base – a double win.

 

More outlets, and larger communal spaces geared toward more points of social contact.

More outlets, and larger communal spaces geared toward more points of social contact. (Source: Tru by Hilton)

It’s important to note for hotel developers and investors that while smaller rooms are efficient and may appeal to many customers seeking a more communal experience, caution should be taken especially in full-service and luxury hotels, where making rooms too small can actually be unattractive to their customers who may value that larger space and more individualized amenities. Millennials currently are largely tourist travelers looking at more budget-friendly options. Generally – keep in mind which customer base you are appealing to, and what amenities your hotel offers.

Overall

It’s important to keep in mind upcoming preferences as hotels seek to capture Millennial travelers. The Millennial generation is still growing and as the generation ages, their average income increases, and we expect full-service and even luxury hotels to start adopting some of the trends and design changes that we already see in millennial minded hotel products.

However, at the end of the day, it’s also important to continue driving the personal, human aspect of hotels. There is no replacement for quality service, and hotel developers should not see technology and amenities as a complete replacement for strong customer service and quality associates and hotel staff to drive guest satisfaction. It’s that combination of strong customer service and appealing amenities that will push Millennial interest and loyalty in the long run.

 

Sources:

Saiidi, Uptin. Millennials are prioritizing experiences over stuff. CNBC. May 5, 2016.  https://www.cnbc.com/2016/05/05/millennials-are-prioritizing-experiences-over-stuff.html

Moxy Hotels. Marriott. http://moxy-hotels.marriott.com/en

Trejos, Nancy. “Hotels add plugs, ports for device-laden guests.” USA Today. May 21, 2017. https://www.usatoday.com/story/travel/roadwarriorvoices/2017/05/21/hotels-add-plugs-ports-device-laden-guests/101863684/

“Marriott Mobile App | The Perfect Travel Companion.” Marriott. mobileapp.marriott.com

Meltzer, Matt. “How Tru by Hilton Is Trying to Win Over Millennials.” Aug 23, 2017. CN Traveler. https://www.cntraveler.com/story/how-tru-by-hilton-is-trying-to-win-over-millennials

 

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IHG’s Newest Product: The Strength of the Midscale

4 min read

After a long wait, Intercontinental Hotels Group (IHG) has finally revealed their new brand, Avid. This is an incredibly important move because it targets one of the most successful chain scales in the hospitality industry – the midscale transient travel brand. According to Intercontinental Hotel Group (IHG), the worldwide hotel company wanted to provide an excellent option for midscale travelers:

With the extended-stay Candlewood Suites as the only midscale brand in the company’s portfolio, IHG was not addressing the needs of an estimated 14 million travelers who could spend about $20 billion in roomnight revenue. – Elie Maalouf, CEO of the Americas, IHG

Did you catch that? 14 million travelers who could spend about $20 billion in room night revenue. The midscale market is extremely critical to the success of hotel companies seeking to expand their portfolio, and understanding that midscale market is incredibly important to hotel investors looking to make a smart investment move.

The new Avid product by IHG. Source: IHG

Why is the midscale market so foundational?

As mentioned in one of our vlogs, there are different types of chain scales that target different demographics of travelers.

The type of amenities and price point of a luxury hotel like the Ritz-Carlton is vastly different from the available amenities and price point of an economy property like a Red Roof Inn. At your Ritz-Carlton, you’ll have a pool and a hot tub (maybe several of each). Expectations include 24/7 concierge service, a spa, and at least one in-house restaurant. In lower chain scales, you’ll find just the basics: free wi-fi, a clean room, and maybe free breakfast. The price of a room sometimes can also reflect the amenities that it offers.

RevPAR Change - Hotel Investments

Midscale scale hotels have been on the rise faster than most other chain scales, while establishing higher long-term value than economy scale products.  Source: HVS

Here’s where midscale products come into play. Midscale hotels offer a happy medium between both ends of the hotel chain scale range. Midscale hotel assets are more resistant to declines in the national economy and downturns in the hotel cycle. When people are short on money, often the first things to go are the luxury items, or the “wants”. A family faced with a tighter budget may opt out of the Ritz Carlton, and will look to more affordable products, including midscale hotel products. On the other end, midscale hotels also offer a solid standard of quality higher than their economy hotel counterparts, and travelers (especially small business travelers) will definitely pay for that nicer midscale room as opposed to an economy room if they can afford it. This ability for midscale hotel products to do well in both thriving markets and struggling ones makes them a sturdy investment that is more resistant to fluctuations in the economy.

In addition, midscale hotels are often popular with business and corporate travelers, who make up the majority of hospitality revenue annually. Midscale products like IHG’s Avid provide the quality that many small businesses are accustomed to during business operations: wi-fi access, free breakfast, and plenty of conference and meeting space where they can meet clients and business partners.

As we’ve mentioned before, hotel investment options should always be carefully analyzed to make sure that it is an ideal investment for the market. Depending on the location, economic setting, and other market characteristics, it might be a strong option to invest in an upscale or even luxury hotel. In other markets, investing in an economy brand could be the best option. In Schaumburg, EquityRoots decided on a dual-brand model, one that combines the midscale market strength of a Holiday Inn Express combined with an amenity packed full-service Holiday Inn product with an in-house restaurant and bar component. For Schaumburg’s market, this strategy offered a strong amenity for surrounding businesses that demanded additional midscale market options.

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IHG’s launch of Avid makes this a good brand option for developers looking to offer a more consistent lodging product in markets where economy or independent properties are prevalent or in markets where Holiday Inn, Holiday Inn Express, and Staybridge products already exist and are running annual occupancy levels above 80%.  Prematurely investing in new brands before more established brands have recorded solid performance can be dangerous.  Another confusing part can be what to do if you build a new construction Avid in a market that already has older more established brands with lower cost basis.  It will be hard to sell rooms for a higher price, even if your property truly costs more to build than older properties, therefore I think it’s important to note that it is most advantageous to develop Avid only if you own the other IHG flags in the market.  Some brands like Hilton have already discovered this fact, and have created a priority method to develop newer flags like Home 2 and Tru, giving preference to the existing Hampton Inn franchisee in the market.

Sources:

Fox, Jena Tesse. “IHG launches new Avid brand to attract midscale travelers, developers.” Sep 18, 2017. Hotel Management.

“What’s driving customer loyalty for today’s hotel brands?” Consumer Intelligence Series. PwC.

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Hotel Building Q&A: Part 2 – Trends in Construction

12 min read

This month, EquityRoots had the opportunity to sit down with hotel construction builder, Neil Kumar of KCM, Inc.  We’ve had a lot of our readers ask us questions about the construction process, and we hope this 2 part Q&A sheds some light on some of the in’s and out’s of hotel construction! (For part 1 on hiring labor practices and value engineering, click here).

If you have more questions about hotel construction, hotel crowdfunding, or the hotel industry in general, visit our contact us page!

Okay. Moving on to construction trends – why are 4-story models in hotel construction really popular?

NK: So, hotels typically choose between using wood or steel for their structural skeleton. Steel is a bit heavier, and needs additional support. With a four story construction, you can build a solid structure out of wood without needing that additional support. Historically, that would save on building costs tremendously.

Most building codes will allow you to do wood construction up to five stories. The issue is that depending on where you are building, because some cities won’t let you do five stories of wood construction. For example, Austin, TX and Schaumburg, IL are both cities that do not allow more than four story wood construction, unless you’re using fire-treated lumber, which can often be more expensive than steel.. If you go a little further out west in Illinois though, you have DeKalb which does allow five story wood buildings.

Ah – so there isn’t a set national standard for wood buildings? Is it just whatever each city decides?

NK: The general decision for each city is between four or five stories as the limit. The main reason that most people do wood for four stories is because wood construction has traditionally been the most cost effective of all the construction types. Structurally speaking, there is no difference between wood studs and steel studs.  But some cities do not want to take the risk for many reasons – one of them being fire safety.

So between wood and steel, is there a clear preference among builders? Is the steel worth that investment despite wood being less expensive?

NK: So how we approach that is changing from what has traditionally been done. So again, structurally speaking, there is no difference between wood studs and steel studs, but steel studs were say – twice as expensive as wood studs. Recently, that difference in price has decreased. The cost difference was 100%, then 50%, then 25%, up until today. Today, the steel and wood studs are almost identically priced. The cost of lumber has been going up, while metal has kept its rate of increase under more control.

Is there any particular reason why lumber would be going up so fast? Is it just higher demand, shorter supply, etc?

NK: A lot of our lumber does come from Canada, and because there is discussion of more tariffs to Canada, the increased costs of lumber reflect that.

So are we seeing the trend towards building more steel buildings now?

NK: When you go to Texas, for instance since I know that market, the move towards steel studs is almost one hundred percent from wood. If the price is similar, developers like steel because steel is non-combustible.

So when you talk about a steel structure, you have to take into account those non-combustible benefits. Your insurance goes down for the steel building even compared to fire resistant wood, which I know some buildings are using now. But there is no comparison in terms of steel being much safer. The fire marshall can tell you that.

Steel also happens to be sustainable, since all the metal studs can be made from recycled metal. You can attach value to a steel building for being more environmentally sound.

If you look the next ten years worth of savings for that insurance. It’ll be significant. When you get into selling hotels in your exit strategy, you’ll also have an added benefit. Many owners of hotels don’t stop building with just one hotel. A lot of larger owners have five or six or seven or eight hotels in their portfolio. So imagine selling all those hotels in that portfolio, and having the benefit that all the hotels in that portfolio are non-combustible. That’s hugely attractive to investment groups. Some of those investment groups might have buying policy that looks for non-combustibles as a characteristic of their investment because of their safety. So that opens the investment up to a specific class of institutional buyers.

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Got it. So let’s say you build with steel then. How does that change the construction process of the hotel?

NK: So what happens when you change from wood to steel studs is that you know need to have a concrete foundation on each floor. You’ll need a metal deck on every floor to support that concrete. You’ll need a steel staircase instead of a wood staircase.

So naturally, all this is going to add up. The weight is going to be a little higher due to the floors, not because of the studs, but because our foundations are going to be slightly different. They’re likely to be a little more expensive since you need to support that weight of the floors.

Of course, one side benefit of those steel floors is that the floors don’t squeak. With a wood building, there is a chance that as the building ages the floor will start squeaking. If you have a Hampton Inn, let’s say, there might be a product satisfaction guarantee. If the customer calls and says “hey, my floor is squeaking so I couldn’t sleep,” you might have to refund that customer. This doesn’t happen often, but it is something to be aware of.

Another one of our readers asks: “Are there any prefabricated hotel models that you’ve personally worked with or seen?” Maybe Modular construction or paneling?

Visit our article on modular construction for more information!

NK: Paneling we do all the time, but modular our team doesn’t do too much since most cities don’t allow it. Or to be more precise, a lot of bigger cities that we’ve worked with don’t allow modular construction where you can bring in whole pre-fabricated rooms and bring them in to be assembled on site. We can do modular constructions in very rural areas where there’s absolutely no presence of a city.

Why is that?

So there’s a lot of inspection-related things. Many cities are not comfortable with installing electrical or pipes in a pre-fabricated room and just bring it into the site. They want to make sure a license individual has done that work on-site, you know? So a lot of it is city code again. They want to make sure that the job is done properly, particularly for those more intensive components like pipes.

So what is the difference between modular construction and paneling then? You said your team does a paneling all the time.

NK: So paneling refers to mostly wood paneling and steel stud paneling. In other words, the walls for the skeleton of the building can still be built in pieces – panels – like Lego pieces in a manufacturing environment and you can bring all those pieces and tag them together.   So it’s very similar to modular building except you are dealing mainly with the skeleton as opposed to entire rooms.

One question we received is, what is the cost difference to build a hotel compared to a condo or apartment in terms of square footage?

NK: So let’s say you’re a real estate investor trying to decide whether to go into the hotel asset class or an alternative real estate investment, such as a condo or apartment. Those are quite different from each other. I suppose the most fair comparison would be comparing that condo or apartment to an extended-stay type hotel where you have that kitchen and is set up more traditionally like an apartment.

Generally speaking, apartment buildings are built with wood construction. So we could compare it to a wood construction hotel, but the dollar per sqaure foot would be almost identical.  But let’s say you have both a three story wood-frame apartment and a three story wood-frame hotel. Let’s make that assumption. And stretch the imagination to make a fairer comparison – say that both buildings are 100 rooms. One 100-room apartment, and one 100-room hotel. If you talk about dollar per room, you will see that the cost per apartment is much higher because the in the apartment there is still more variability in the rooms. You have a living room, the bedroom, and entrance area, closets – and a lot of apartments have two bedroom and two bathroom setups. With hotels, most of the rooms look the same, or at least are very similar. All the rooms share the same entrance; all the hotel rooms share the same facilities.

I think the better way to look at it is the potential for revenue. So for example, let’s say in Schaumburg you have a two bedroom, two bath apartment renting at $2,100 a month. That’s about $70 a day to rent out those two bedrooms. Yet with the hotel, you might be earning far more than that $70 a day with one hotel room – and the reality is that your hotel has far more than just one or two available rooms each night.

You’re pulling in guests at a much higher rate. That’s where real estate investors should focus. The question of development cost is important, but you also need to look at what the profit margins are. How much money are you spending on an apartment versus a section of a hotel, and how much are you pulling in?

I see. So why are multifamily and apartment investments still so popular compared to hotels?

NK: I think a lot of people do what they are comfortable with, and I also think that the ability for investors to invest in something like a hotel wasn’t really an option until recently. The barrier to entry to get a hotel has been very high- too high for many people. So they may not even have had the option to invest in a hotel until firms like yours have come online and democratized the playing field.

Anything else you want to add that readers might want to know?

NK: I’m very excited about this EquityRoots project that we are currently working on in Schaumburg. We haven’t done anything like this before in a crowdfunding kind of a situation. If this develops successfully, it’ll truly be magical, because I’ve never seen a hotel developed like this before. It could really mean many more crowdfunded hotels across the nation in the future and really catalyze a new trend in investment.

For part 1 of our Q&A series, Neil addresses how his team hires labor for projects, as well as value engineering!

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Hotel Building Q&A: Part 1 – Skilled Labor and Value Engineering

12 min read

This month, EquityRoots had the opportunity to sit down with hotel construction builder, Neil Kumar of Kumar Construction Management. We’ve had a lot of our readers ask us questions about the construction process, and we hope this 2 part Q&A sheds some light on all the in’s and out’s of hotel construction! (For part 2, click here).

If you have more questions about hotel construction, hotel crowdfunding, or the hotel industry in general, visit our contact us page!

Hotel Construction

What is your general role in the development of a hotel?

NK: As a hotel construction builder, my role is to manage the construction of the site from start to finish — all the way from removing topsoil to receiving the final occupancy permits. I’m involved with hiring people with the right kind of experience for the site excavation, concrete foundation, structural work, interior and exterior finishes, and general site work. I also help coordinate the installation of furniture (which we refer to as FF&E: furniture, fixtures, and equipment), and hotel opening. There are a lot of moving pieces, and I always have to think at least 3 months ahead of everyone else to do each job effectively.  

One of our readers asks: Is the availability of skilled labor challenging?

NK: In construction, it always seems like when there is a lot of labor available there are no projects, and when there is no labor available there is a surplus of projects.

With finding the right fit for skilled labor, we always prefer local, but sometimes we do have to look beyond the direct area of the regional site. Sometimes my team looks further south, in South Indiana, Missouri, Kentucky, or even Texas to find our labor pool. But yes – we always prefer local. If the pricing is right, we always prefer working with local crews who know the area.

What are some of the characteristics that you look for in hiring?

NK: The two big things are experience and commitment. Our team sits with every prospective person we hire and examines their previous projects. You have to make sure they have the capacity to handle the project you want to hire them for, of course. How many workers do their teams have available?

But we don’t end there. The bottom line is that you always want to have a plan A and plan B. I always have backup crews ready to go in the case of an emergency. It’s a way of using competition to ensure that we hire only the best teams that are motivated to do the job.

Let’s say we hire a local plumber, for example. They have to be within our budget. But we also introduce them to a plumber from Texas – one that has done work for us in the past. We have the plumber from Texas join us at our current site and work with our local plumber.

The reality is that we want to communicate the message that although we choose to work with one person, we always have a plan B. And a plan C and D, to be honest. It’s always great when the first team or group you work with are excellent, but especially with larger projects, you cannot afford to take any chances.

One last thing is that our team doesn’t negotiate too much on price. If our budget is 350K, and a prospective group’s price is 700K, then we choose not to negotiate, because it is likely that we will have to negotiate with that group at every turn. You want people who are reasonably priced for your project from the very first shot.

What is reasonably priced? How do you determine what is reasonable?

NK: “Reasonably priced” is always a moving target. The cost of buying “x” 10 years ago is different than how much the cost is today. I wish there was a written published method, but the reality is determining what is reasonable has a lot to do with 1) experience, experience, experience, and 2) hard work, hard work, hard work. There is no magic answer. You can look at the past projects you have done as a data point. Of course, every site is different so you have to be able to think on your feet and adapt quickly.

For every project, our team has to finish the plans first. From there, you have to go out there and talk to the people who are building real projects and get the prices out there. We insist on meeting the people we work with in person.

In our experience, the biggest hotel development issues come up when we bring in people who are the wrong fit for our projects. If you know the market price for plumbing might be $8,000 a room or $10,000 a room, it is suspicious to also sign a contract for $4,000 a room. $7,500 a room sounds closer to the right price, and we figure that we can still attain a number like $7,500 through effective win-win negotiations and disciplined value engineering.

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What is value engineering?

NK: Value engineering is a method and process of thinking about how to make the construction as cost-effective as possible without sacrificing quality. Our team has to consider the cost of materials, labor, but also construction schedule.

There are many ways to create a building’s foundation, for instance. Depending on the market, we might consider using CMU blocks for our wall foundation as opposed to concrete poured stem walls.  Building a hotel in Chicago with masonry may not be as wise a decision because in Chicago, the costs for that masonry are quite high, and it takes significantly longer than just putting up a concrete wall. The fact that Chicago has several months of snow play a role in what makes the most sense construction wise. It is possible to build during the winter, but of course additional accommodations have to be made to account for the inclement weather. If we were further south in the U.S., masonry is the way to go. The vast majority of plans for developments further south will show masonry wall for the foundation.

Of course we do still see projects with masonry in the Chicagoland area, but it comes down to each individual project and how you think that masonry will actually benefit or detract from the success of your development.

Is that because of climate, supply, etc?

NK: Supply and demand. Masonry charges around $3-4 dollars a block in previous projects I’ve done in Texas. In the upper midwest Chicagoland area, I’ve seen that price go up to $70 per block.

But you have to look at the project holistically. If you spend too much money on one area, that means that you naturally have a smaller budget for other items. You have to prioritize which items are worth spending a little more on, and which job roles are worth spending a little more one.  If you look at all the items in construction, you have to identify what your top priority items are that control the quality and the schedule of the project and you give it to the top guys and then you can decide on other things that aren’t as core to your development. Especially with very schedule sensitive projects that are visible, you can’t afford to risk hiring the wrong person. Again – it comes back to hiring the right people.

For particularly sensitive projects, we might price the project a little higher, for instance. Sometimes it is worth hiring subcontractors that have a slightly larger overhead, and even though the cost to work with them is a little higher, working with them may be smoother because they are likely to produce people who can work faster, produce shop drawings faster, and can answer telephone calls properly, promptly, and professionally.

For part 2 of our Q&A series, Neil addresses trends in construction, why 4-story hotels are popular in construction, and modular/paneling methods!

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Bhavik Dani Featured on Midland Investments Podcast

1 min read

Midland Self-Directed IRA & 1031

Earlier this month, our very own Dealflow Officer Bhavik Dani lent his hotel crowdfunding expertise to Midland IRA, on their Midland Media: Podcast Series. Bhavik goes in depth about how hotel crowdfunding distinguishes itself from other real estate investment opportunities, and also discusses our team’s journey so far on the road to making hotel crowdfunding accessible to investors across the nation!

Check out the full podcast here.

Bhavik Dani Featured on Midland Investments PodcastInterested in learning more about hotel investments and EquityRoots’ hotel crowdfunding platform? Click below!

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EquityRoots: Democratizing Hotel Investments

3 min read

Hi. I’m Bhavik Dani, Dealflow Organizer with EquityRoots.com. It’s my pleasure to talk to you about how crowdfunding is revolutionizing the hotel industry. EquityRoots.com uses crowdfunding as a finance mechanism to raise capital for real estate assets, specifically for premium branded franchised hotels. EquityRoots combines and harnesses the buying power of the crowd to bring you investment opportunities in institutional grade investments that were once available only to REITs, insurance companies, and the largest corporations. Our crowdfunding technology allows even the smallest of investors to pool their capital right next to proven developers and industry leaders. Hotel crowdfunding is really a system in which everyday folks like you and I become the source of capital. The capital can be structured as equity, debt, mezzanine debt, and sometimes even convertible debt. This capital is fairly flexible with how a developer can use it to further grow and improve business, from renovating a pre-existing hotel development to constructing and designing an entirely new development from scratch.  The advantages of crowdfunding to investors include:

Diversifying Risk

We can diversify risk by allowing the crowd to buy fractional interests in different hotels across the country. EquityRoots allows investors to select multiple assets, affiliated with different brands and located in various geographic territories.

Institutional Grade Assets

Next, it allow hotel investors to own a piece of an institutional grade quality hotel. Let me explain a little further. The average hotel groups and hospitality groups have the ability to build a standard 80-120 room hotel in a suburb, where barriers to entry and construction costs are often lower. However, in center city urban markets – like Chicago and New York – investors often encounter high barriers to entry and substantially higher construction costs. Deals in such markets can become out-of-reach for traditional hoteliers and real estate investors. This is where crowdfunding kicks in. By pooling capital from everyone, it allows combined leverage of the crowd to pursue a higher-grade, higher-quality deal. It’s something usually reserved for institutions –  REITs and insurance companies as I mentioned.

No Middleman and Commissions

Another advantage is removing middlemen and commissions. The crowdfunding process is very clean and simple. Our crowdfunding platform doesn’t allow broker fees or commissions for buying and selling the investment. EquityRoots aims to make every penny of your dollar count in the investment.

 

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Ownership Beyond Paper

Investing in property and buildings that you can see and visit is probably one last advantage I’d like to share. Hotel crowdfunding investments are markedly different than paper stocks and bonds – paper certificates that we trade on by speculation and can never actually “see” in the same sense that you can see and visit a hotel you invest in. Real estate is an investment that you’ll always be able to see. It has real property interest and improvements on the land.

Conclusion

These are just a handful of the reasons why hotel crowdfunding is such a game changer – not only does it harness the power of real estate crowdfunding, but it also allows real estate investors new and old to gain access to those high-barrier markets. EquityRoots is hotel crowdfunding, democratized for today’s investors.

 

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Keeping Chicago Competitive: The Hotel Supply Wave

4 min read

A Wave of Supply

Chicago’s hotel market is preparing for a supply wave. In the next few years, the Windy City expects to add an additional 12,000 to 13,000 new hotel rooms to its arsenal. To many, this isn’t shocking news. Hotel developers and operators in Chicago have enjoyed a steady climb in RevPAR since 2009. However, in 2016, we saw Chicago’s first decline in RevPAR in 6 years, a sign which some say is reason to worry about the incoming hotel room supply.

Market consultants and policymakers point to a potential oversupply problem as the source of their worries.  Under basic supply-and-demand principles, these critics essentially say that if there are too many hotel rooms in a market, then the price of each hotel room in that market will, on average, decrease.  There will be more hotel rooms than Chicago needs to accommodate its visitors and with more hotel rooms than hotel guests, the argument is that each hotel will get a smaller piece of the pie. We believe that these claims are blown out of proportion and fail to acknowledge any of the upside. While the argument is fairly simple and logical, the critics are erroneously oversimplifying the market and overlooking the micro and macroeconomic consequences. Our business team at EquityRoots wants to make sure investors and hotel owners are not oversimplifying Chicago’s market and then making assumptions on those generalities.

Keeping Chicago Competitive: The Hotel Supply Wave

A robust supply of hotels are critical in establishing continued economic growth in Chicago.

Other regions in the United States outside of Chicagoland (San Antonio, New York, and Seattle, to name a few) have similarly seen the development of new hotels in their respective markets. These brand new hotels attract additional business and travel, and keep their cities competitive in the hospitality market. Cities that fail to upkeep their hotel inventory can lose out on significant business opportunities and city revenue. This includes Chicago, which stands to lose much ground to other established and on-the-rise metropolitan areas. If Chicago wants to remain a world-class city that is capable of handling large conventions and attracting major corporations to set up shop, it needs to keep things fresh with updated hotel products.

The Chicken, or the Egg?

If you’ve been watching Netflix recently, you might have stumbled upon “The Founder,” which takes a look at the entrepreneur Ray Kroc and his role in making McDonald’s a worldwide brand. For Ray Kroc, business growth is a supply and demand issue. Which comes first, the chicken or the egg? Ray Kroc believed that new supply attracts new demand, building the McDonald’s restaurant empire on this theory.  

Likewise, EquityRoots.com believes that the threat of oversupply is overhyped, particularly for the newest hotels to enter Chicago’s market. While it is true that there will be more hotel rooms available in Chicago from a sheer numbers standpoint, the newest constructed hotels will drive others to improve. Newer hotels that are slated to open in Chicago – including a Cambria hotel in Chicago’s Loop and a dual-brand IHG hotels in Schaumburg – introduce updated and upscale venues with cutting-edge floorplans that appeal to old and new visitors to the city. Modern additions including rooftop venues, new technology, and newer beds are likely to attract the majority of incoming travelers, and this is a standard that corporate travelers have come to expect in other markets across the country. This means that the pressure falls to older hotels to reinvest and renovate, especially those that are 20 years old or more. For example, developers are already spending about $20 million to renovate the Talbott Hotel in the Gold Coast in order to keep the asset competitive. Other older Chicago hotels are also expected to renovate and update their rooms and designs to avoid the risk of becoming outdated. Chicago’s hotel room supply will continue to be updated.  Increased expenditure and capital improvements will ultimately raise an owner’s basis, driving rental rates higher to obtain the same return.  As a result, the entire market responds by increasing average daily rates.  The supply of total rooms will go up, but so will quality.  This gives all hotels the edge in competing for corporate and leisure travelers. As a whole, competition will drive up the quality of hotel services and products offered in Chicago, which lead to positive experiences and can encourage even more travelers to visit the Windy City and drive demand.

Moving forward, Chicago is expecting more travelers, which is great news since the number of conventions and meetings held last year in 2016 was atypically low for the Windy City. When you couple that with high-publicity events like the Chicago Cubs’ World Series win last year, EquityRoots.com expects that the future still remains bright for Chicago’s hotels.

 

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So, what caused the 2016 decline?

If it wasn’t primarily oversupply that pushed Chicago’s downward RevPAR dip in 2016, what was the source? Chicago is facing microeconomic issues.  For starters, the city’s current lodging supply is outdated compared to other cities.  It’s also worth noting that Chicago was in the running as a host city for the 2016 Summer Olympics. During the bidding process, corporate travelers shied away from booking in Chicago because the Olympics typically creates a lot of traffic, congestion, and delay in the way of a busy work/meeting schedule.  A number of conventions and businesses avoided booking travel to Chicago during the time frame that the 2016 Olympics would be occurring, opting to hold their conferences and meetings in other cities like Detroit, Indianapolis, Las Vegas, or Minneapolis.  When Chicago wasn’t awarded the 2016 Summer Olympics bid (which went to Rio de Janeiro), the city got a 1-2 punch. The city not only missed out on the opportunity to capitalize on a huge wave of tourism for the games, but also was hurt by the void of typical corporate travel avoiding the market. As 2017 and future years pose more typical operational years, we believe the hotel industry will continue to improve in Chicago.

Chicago needs to stay competitive to keep up with other leading primary markets in the United States, including New York and San Francisco.

Chicago needs to stay competitive to keep up with other leading primary markets in the United States, including New York and San Francisco.

Staying Competitive

Freezing free market activity and slowing down updated prototypes will push Chicago laps behind in a race against other cities. America and capitalism thrived on encouraging innovation and progress.  If Chicago were to halt new development for fear of oversupply, it will have comparatively lower quality lodging than other cities, which will make it more difficult to attract travelers and other demand drivers to come here in the first place. We are seeing incredible market strength in cities like Seattle, NYC, and Boston – cities that happen to offer the latest and greatest hotels and amenities.  Chicagoland needs to put pressure on the status quo, create pressure to improve, and bring in the latest and greatest facilities so that we can attract more businesses and travelers to come here.

Sources

Gallun, Alby. “Hotel market falters after six-year run.” Crain’s Chicago Business. Sept 26, 2017. 

Gallun, Alby. “Will the downtown hotel market bounce back in 2017?” Crain’s Chicago Business. Jan 30, 2017. 

Hoisington, Alicia. “Oversupply concerns loom over Chicago.” Hotel Management. Mar 6, 2017. 

Ori, Ryan. “Talbott Hotel to shut down for $20 million renovation.” Crain’s Chicago Business. Dec 8, 2016. 

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Modular Construction: Hotel Construction & Design

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Modular Construction: Hotel Construction & Design

Modular construction is revolutionizing building construction, especially in the hotel industry. Instead of having to build the entire hotel from the ground up, modular construction pushes most of the construction to happen off site. This type of construction is incredibly appealing, especially to first-time hotel investors looking for a smart real estate investment.

Historically, the construction for a hotel development occurs on-site. All your raw materials are delivered to the site, where they are assembled by various tradesman and sub-contractors. The foundation is poured and the framework is built. Each floor is set up, and individual rooms are then constructed and finished as mechanical, electrical, and plumbing systems are established.

So what does modular construction offer? Modular construction refers to the modules that are constructed off site and then delivered to the construction site to be connected together. In the case of hotels, this often means that each room is built as a module off site. The rooms are shipped to your construction site and then the rooms are hoisted and stacked and sealed together, very much like legos. Instead of building your entire building from scratch on-site, you are able to construct your hotel into smaller sections that are later placed together. There are numerous benefits to modular construction, including:

Efficiency

Hotels benefit disproportionately from modular construction because most of the guest rooms are essentially the same and easy to replicate. By having most of the construction take place off-site, hotel developers often save time and money in the actual on-site construction, since the rooms are already built. Modular construction minimizes weather delays on site, and simultaneously reduces construction hazards. In addition, because of reduced construction time, there are potential savings associated with construction financing being a shorter term. There are also actual material savings using prefabricated modular construction. The repetitious nature of modular assembly allows carpenters and tradesman to bring material wastage down to a bare minimum. Additionally, construction traffic delays are shorter, and your development timeline is shorter, allowing you to make it to opening day and realize a return sooner. There is probably a good chance that a prefabricated construction company is able to buy lumber, steel, plumbing, and electrical equipment at better prices than most local builders, simply because of their volume and purchasing power.

Quality Management

Mass production allows you to speed up not only construction but also allows developers to have better quality. Modular construction reduces a lot of the variable guesswork in on-site construction from room to room, ensuring that each room’s construction will be consistent and predictable. Even the tiny details like screws and nails go into the exact same place, for each room module. It might also be important to note that indoor factory building doesn’t expose the materials or tradesman to natural elements, especially if you’re thinking about building in a cold or rainy climate. Naturally, the materials stay dry and worker productivity remains high when you’re inside controlled environments.

 

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Conclusion

We predict that modular construction will only get more popular, and will allow hotel developers to speed up their rate of development without sacrificing quality. Moving ahead, modular construction companies are now even offering to build rooms with your FF&E (furniture, fixtures, and equipment) already built in, so hotel developers have even less to worry about when preparing to open doors and getting to revenue.

Sources:
“Why Build Modular?” Modular Building Institute.

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