IF YOU BUILD IT, they will come. That’s what all hotel developers hope for their projects. But you have to build it first, and sometimes that goal is stymied by complications in the local government permitting and zoning process. In many cases, local citizens oppose hotel development out of fear it will lower property values and negatively impact quality of life. Along with resistance from the community, existing hotels may push back, fearing more competition in a busy market.
In most cases getting a hotel developed can be a simple matter of filing the right paperwork, getting the correct easements and talking to the right people. But experts say there are times when hoteliers are forced to learn hard lessons when they face unpredictable obstacles. More often today, hotel developers are asked to face a skeptical audience and explain the benefits a well-managed hotel brings to a community.
Here are a few recent examples:
In June 2017, Jay Batra of Regal Hospitality met with local resistance to his plan to build a four-story Holiday Inn Express in Taos, New Mexico, predominately a tourist town. Residents opposed the building’s height. Development was delayed while Batra worked with local officials to redraw plans for the hotel, taking it from four to three stories. Taos city council approved the plan in August but the issue spawned a separate legal challenge to the Taos Hotel Overlay Zone, which was adopted in October 2016 and allows buildings to exceed normal height restrictions.
In December, residents in an urban neighborhood in Minneapolis, protested a soon-to-open Moxy by Marriott nearby. Opponents said Moxy’s website ads promoting the brand showed young adults living a life of “drunken debauchery,” and they did not want that in their backyards. Graves Hospitality owns the hotel, which opened in January.
In February, hotel developer Emish Patel won an appeal in the Tuscaloosa County Circuit Court after the city’s zoning board of adjustment denied his request for the special exception to build a TownePlace Suites. The area is zoned for a hotel, but an exception is required for an extended-stay property. The city denied the special exception after residents opposed the project, citing fear an extended-stay hotel would attract bad business.
In March, residents of West San Jose, California, rallied in opposition to a plan that would allow two hotels to go up in their neighborhood. Opponents say the plan falls short in alleviating their concerns about parking and traffic flow.
In April, citizens in Bluffton, South Carolina, launched a petition drive to keep an Extended Stay America hotel from being developed near their neighborhood. Although the 9-acre site is zoned for a hotel, residents fear the hotel will increase crime, drug abuse and lower their property values.
Moving on up
As many Asian American hoteliers seek to transform and expand their family businesses from smaller, simpler operations into multilevel management and development corporations, more next-generation hoteliers are experiencing a new level of project planning.
Traditionally, Asian American hoteliers have their roots in limited-service hotels, said Rahul Patel, a managing partner at Patel/Gaines law firm in San Antonio, Texas. That has changed as the second generation has taken over the business over the past decade, said Patel, who represents hoteliers during the municipal approval process.
“We’re starting to evolve to expand into full-service hotels,” he said, and that entails a list of new needs. “You need food permits, you need liquor permits.”
There’s also been a trend over the past five years toward building those hotels in high-barrier, high-density urban areas, downtown property that can be hard to come by or retrofitting old buildings.
“That adds to the complexity of what you’re doing,” Patel said. “Now you’re dealing with height restrictions, restrictions on material you can use. There are so many things we have to look at that are adding to the problem.”
Retrofitting existing buildings can be more of a challenge, Patel said, especially depending on their previous use. For example, an old bank building doing business during regular daytime business hours requires less parking than a hotel operating with overnight hours.
Many Asian American hoteliers skilled at operating hotels are now looking to develop them, and that’s a big change even for them. Operating an existing hotel and building a hotel “are two entirely different tasks, and that can be a challenge,” Patel said.
The development trend represents a generational shift in the Asian American hotelier community, Patel said. “Now we’re a strong player, whereas 10 years ago we were not looking at that as an option,” he said. “We’re more sophisticated hotel owners than we’ve ever been, and that’s a good thing.”
But there are pitfalls, and it’s important to have help along the way.
One of Rahul Patel’s clients, Vick Patel in Austin, Texas, is resolving some issues with a local government over a recent project. He did not want to release the specifics of the deal since the negotiations are still ongoing, but in general he has encountered many of the issues outlined by his attorney.
His company, Tiya Lodging, has been in business for 12 years but now it is making the move from smaller towns to bigger metro markets, and there has been a learning curve. “It’s way easier to do it in a smaller town,” Vick Patel said.
To begin with, Vick Patel advises developers to have their property deals reviewed by an attorney before closing to avoid issues with surveys, titles or more. “If you try to cut corners it will cost you an arm and a leg in the end,” he said.
Rahul Patel said hiring the right team, including experienced civil engineers and contractors, is key to successful development.
“Sometimes that little piece can have a big impact,” he said. “A lot of it is asking the right questions to the people on your team.”
An architectural firm may have good designs, but lack the experience in building hotels, he said. “In most suburban markets a box hotel is not much of a challenge.”
And that expertise is most needed at the beginning of a project, when hotel developers, especially ones moving into a new, unfamiliar market, are most likely to encounter problems.
Chicken v. Egg
In the usual hotel development process, Rahul Patel said, the developer picks the location where they want to build; then they pick a brand to partner with, followed by financing.
“We have two things moving independently but are very much related,” Patel said.
It’s a “chicken-and-egg” situation in which the hotel developer has a hard time getting financing until they know what they’re building, but franchisers may be hard to convince to come on board until they know financing is in place.
Bank agreements have milestones that must be met, but unexpected problems can arise from zoning issues, protests from neighbors and easements. “How do you manage those two?” Rahul Patel said.
These problems can cause delays that have to be explained to the developer’s brand franchiser. Vick Patel also recommends trying to secure additional time from franchisers for completing a project to account for possible delays.
“In urban markets you’re going to take two, maybe three years to get a permit,” he said. In smaller markets that process usually takes only three to six months on average.
“You always want to make sure you have enough time to deal with the franchiser if you get into this type of situation.”
Flexibility is also key, say both men. “There are a lot of other items that come up that simply aren’t properly reviewed until after the fact,” Rahul Patel said.
That doesn’t mean the problems can’t be fixed, Rahul Patel said, but they can result in delays and missed development deadlines.
Much depends also on the type of property a developer buys, Vick Patel said. In high-density markets you have to move quickly, and that means taking a chance the property will come with an issue. “But then you have to resolve that issue,” he said.
Resistance to new hotels in the community is most likely to come from existing hotels that fear an oversupply of room. Sometimes, however, Patel said it comes from residents.
“It may not be what people in that area want,” he said. “They may want a new recreation center.”
And sometimes there’s some bad history to overcome.
For years the city of Decatur, Georgia, had dealt with problems from low-priced, extended-stay hotels, including crime and owners marketing their rooms as unregistered apartments. That led to a lot of resistance when PeachState Hospitality came to town with plans to build a Residence Inn in spring 2016, said PeachState’s Chief Operating Officer Ricky Raman. PeachState’s first proposal was denied after residents opposed the project, which would have placed the hotel next to a residential area.
“Those other hotels were used for the wrong intention,” Raman said. “They were used for human trafficking and prostitution.”
The company found another more business-oriented development site, but PeachState had to work to change the image extended-stay hotels had with city officials, he said. Of PeachState’s 22 hotels, six are extended stay.
“We told them we know our hotel is extended stay, but it’s adding value to Decatur,” he said. They wanted to make sure the community wanted them. The process entailed 14 months of legal fees and meetings.
“In our experience, they handled it quite well,” Raman said.
The hotel is now in the design phase. “Our goal is to do the demolition on the old building in three months,” Raman said.
The Decatur project was the first time PeachState faced so many hurdles, Raman said, though they were no strangers to working with cities. “We’re very used to and fine tuned to working with a city.”
Hotels’ economic benefit to cities may help
Rahul Patel and Vick Patel said different markets have different levels of resistance to new hotels. Some are motivated to bring in new rooms and are therefore easier to work with.
In some cases, outside forces compel municipalities to rethink commercial real estate development and send developers back to the drawing board. Rahul Patel expects last year’s devastating hurricanes in Texas and Florida to affect future hotel projects. “They are going to bring on an onslaught of new construction regulation,” he said.
The economic benefits hotels bring to cities was a major theme for American Hotel & Lodging Association President and CEO Katherine Lugar when she spoke at the U.S. Conference of Mayors’ annual winter meeting in Washington, D.C., in January. Hotels provide 8 million jobs nationwide and generate $1.1 trillion in economic activity and $170 billion in tax revenue, according to AHLA.
“From small and independent hotels to the global hotel brands to real estate owners, our industry is a major economic driver in communities across the United States. And we do that in partnership with each of you,” Lugar told the mayors. “Every time a new hotel is built in your cities, your community reaps the benefits of spending and jobs that go well beyond our properties.”