Office & Historical Buildings to Hotel Conversions

During the hotel conversion workshop held at MIPIM 2014 in Cannes, Gwenola Donet, who heads the French team of Jones Lang LaSalle Hotels & Hospitality Group, talked about the main drivers of a successful hotel conversion project.

Part One: How to make the dream come true?

Gwenola Donet Director France Hotels  Hospitality Group

We are currently witnessing a growing trend of conversions of urban historic buildings into hotels, a very complicated real estate process that involves both the market-driven hospitality business and the renovation of obsolete structures.

During last Thursday’s hotel conversion workshop held at MIPIM 2014 in Cannes, Gwenola Donet, who heads the French team of Jones Lang LaSalle Hotels & Hospitality Group, talked about the main drivers of a successful hotel conversion project. The conference was moderated by Guillaume Canciani, Associate Director within the Project and Development Services at Jones Lang LaSalle in Paris, where he is in charge of Hotels development services.

“First and foremost, any hotel conversion has to start with a market-driven approach,” said Gwenola Donet. “What does the market want?”

In order to find out, one needs to go back to the basics of the hotel industry: who will be the client that will populate your hotel and which category are they looking for?

Second, it is important to assess the intensity of the competition – how will the market absorb the supply that you create? And since profitability is in the number of guestrooms, you’ll need to create as many guestrooms as possible. In the case of large-scale buildings however, it might be a better idea to consider a mixed-use, which will add complexity to the conversion.

Third, one needs to look at the building’s suitability for the redevelopment project – how do you fit a hotel concept with a non-purpose built structure?  The end product will result from a combination between the client’s expectations and the operator’s specifications.

Consequently, the standardized concept is rarely appropriate for hotel conversions.

In fact, the result is a unique, purpose-designed project, which is probably why we often see luxury hospitality redevelopments, rather than economy to mid-range hotel conversions.

Next, it’s time to call in the renovation specialists, who will assess the building’s structural elements, including the façade frame and identity, which is very important for a hotel, the commercial and back house areas, and the possibility of extending the basement.

Then, we’ll pass to the regulation stage. The change in use is an element that needs to be assessed very soon in the business plan, said Canciani.

For instance, in France, when one wants to change the use of a building from residential to commercial, there are specific regulations that impact the project by adding a higher cost to the business plan.

The next step is to look at the planning regulations: volume and height rules, preservation rules, accessibility and fire safety regulations, etc.

A hotel conversion is a renovation project that involves complexity and contingencies. Complexity because there are multiple challenges that need to be addressed (architectural and design issues, technical specifications, regulations, tax and legal matters, etc.), and contingency because it’s about risk management. You’ll need the agility to foresee and manage good and bad surprises on a daily basis.

“A hotel conversion is always a unique project,” Canciani added.

As opposed to the office renovation, which is “a standardized game,” hotel conversions involve multiple players. The structuring of the investment will then depend on the complexity of the redevelopment project.

So, in order to avoid the pitfalls of this diverging agenda, Gwenola Donet advises investors to design the roadmap of the conversion process as early as possible. The market and the business plan need to remain the cornerstone of the investor all along the process of the renovation.

It is also critical to establish who does what and when, and to manage the selection of the operator and the renovation process in parallel. And finally, the business plan needs constant updates, which take into account all the changes that may occur along the way.

In conclusion, how to make the dream come true? How to deliver the best product on time and at the right cost?

Gwenola’s answer to this question is: be market-driven, design the most relevant products, select the best partner and manage the development process.

“From our own experience, we are convinced that the key success factor is to have an integrated process and a stable project management team.”

Part Two: Success Story of the Four Seasons Florence hotel in Tuscany

Both investor and operator were on stage at the MIPIM 2014 hotel conversion workshop to present a success story, namely the redevelopment of an Italian 15th century building into the Four Seasons Florence hotel. The property has a rich history, as it was developed for Bartolommeo Scala, the right arm of Lorenzo de Medici.

Lorenzo Bonacchi, who serves as Business Development Director for the Fingen Group, pointed out that an investor’s vision and the selection of the right partner are essential to the success of a hotel conversion project, which can be a long and difficult process.

In this case, the partner of the redevelopment was the Four Seasons Hotels and Resorts. Francesco Cefalu’, the company’s director of development in Europe, agreed that the right team is a key element that needs to be considered when undertaking such a complex endeavor.

The Fingen Group acquired the historic asset in Florence, which includes two portions, in 2001 and 2002, and immediately began the conversion process.

“When you start such a project, you go through moments of excitement and frustration”, said Lorenzo Bonacchi.

As the redevelopment advanced, unexpected expenses pushed the budget higher and higher.

Finally, the new hotel was completed in 2008 and opened towards the end of the year. Unfortunately, because of the economic downturn, this fantastic, very beautiful project had very little occupancy in the beginning.

However, you have to trust the process, and that you’ll get the results in time, according to the developer.

And indeed, things started picking up, and today, the hotel is performing better than its competitors.

“We started in 2001 and finished in 2013, so it was a tedious process,” Bonacchi said. “You need to look at the market and you need to have a vision. Sometimes decisions are not obvious.”

The Fingen Group began the conversion process by analyzing the market and the competitors, and found out there was a gap of 5-star room availability in Florence, along with a growing steady flow of potential customers. Hence, there was the potential of gaining a good market share for the supply they would create.

Furthermore, they realized that through the uniqueness of the historic property and the selection of the Four Seasons brand, they could go beyond the current client base and attract different customers, such as those from the Middle East, who are very active in cities like Paris and London, or those from Russia, who were not traveling to Florence since they felt that the offer of the hotels was not good enough.

“We started work and it was not easy,” Bonacchi continued. “For instance the architect who was actually handling the refurbishment was very happy to take part in the project, since it was a great experience for his curriculum. But then he realized he had to do it. It was not easy. He was overwhelmed that he had to deliver such a product”.

Another issue the developer had to deal with was the fact that they were converting a Heritage-protected property. But the regulation process went smoothly since the building was falling apart and clearly needed to be restored to its original glory.

The good news is that now, through the conversion of this secluded historic residential building into a hotel, people have the chance to visit and admire this special property, that otherwise would have been forgotten.

Clients can experience a jewel, because the property is not only a Four Season, but a Four Season in a unique 15th century building.

The results of this particular conversion project are quite impressive, since the hotel has reached the same occupancy of its competitors, but at much higher rates.

“When you have a jewel in your hands, you cannot be cheap. Think rich!” added Bonacchi.

The redevelopment of the property had a good final result, as the hotel sold last year, and it sold well. As it turns out, all the passion that was put into the project in the beginning was reflected in the final result.

“At the end of the day, the dream can come true provided you have the right partners,” said Gwenola Donet.

Be sure to check out our additional coverage of MIPIM 2014!