Hotels find partner in retail space

 

The Westin Hotel at The Domain in Austin
The Westin Hotel at The Domain in Austin, Texas, opened in 2010 and quickly became a market leader.

 

National Report – Last November, just outside metropolitan Washington D.C., two hotels broke ground 15 miles apart. The 140-room Cambria Suites in Rockville, Md., and the 300-room Hyatt Regency at Tysons Corner Center in Virginia weren’t related in any way, other than as examples of the synergistic relationship hotels can have with connected residential, office and retail space. They also represent the revival of a trend that had begun blossoming before the recession: the hotel as part of a master-planned urban lifestyle center or regional shopping mall.

Marc Dubick bought his 3.2-acre Rockville Town Center site in early 2006 and was well on his way to breaking ground on a project that would include residential and retail components. But in late 2008, Lehman Brothers filed for bankruptcy, the credit and financial markets collapsed and the recession was in full swing. Developers across the country were without funding and most projects were left for dead.

“We just put ours on ice,” said Dubick, the president of Duball, and the developer of the project with joint-venture partner CIM Group. When the $150-million project officially broke ground last November, it included the Cambria Suites hotel in addition to a 263-unit residential tower and approximately 18,000 square feet of retail. The hotel—a “fortuitous play on our part,” Dubick said—came because of new neighbor Choice Hotels International, which is building its headquarters across the street in Rockville.

Just down the road, but on the opposite end of the size spectrum, Woodbine Development broke ground on the Hyatt Regency at Tysons Corner Center, one of the nation’s largest regional shopping centers. Macerich, a real estate investment trust, and partner Alaska Permanent Fund own the massive development. Macerich also hired third-party developers to build a 22-floor office tower and a 28-story residential apartment building as part of the latest phase of redevelopment.

 

Tysons Corner Center
The Tysons Corner Center redevelopment includes residential, office and hotel towers, pictured left to right in this rendering. The 300-room Hyatt Regency is expected to open in 2014.

 

“This concept really started gaining momentum in 2005 and 2006, when hotels started looking very compatible,” said Les Melcher, a SVP of business development for Woodbine, the hotel developer hired by Macerich. “Then obviously you had 2009 and 2010, with basically nothing in development. Now a lot of people are relooking at this, and malls and lifestyle centers with hotels are taking off again.”

Phenomenal Model

By definition, an urban town center “has a significant variety of uses, in both working, entertainment and living arenas,” said Nancy Scull, a partner at McKenna Long & Aldridge, who specializes in advising on complex mixed-use projects. “They’re also defined by the ability to walk within the community, so it’s all tied into one cohesive plan, with one governance structure and one set of rules and restrictions that bring everything together under once central organization.”

They come in all shapes and sizes, from Dubick’s 3.2 acres in Rockville to hotels mixed with massive shopping centers like at Tysons Corner or the Mall of America in Bloomington, Minn.

Sense of Destination

In Austin, Texas, The Domain opened in 2007 and now has 1.3 million square feet of office, retail and restaurant space; more than 800 residential units; and the Westin Austin that opened in March 2010.

“We developed and opened the hotel when the economy was still in the doldrums; however, it ramped up, and became a market leader in terms of [revenue per available room] index within 12 months of operation,” said Deno Yiankes, president and CEO of White Lodging’s investment and development division, which is a 50-percent partner with Simon, the owner and developer of the greater Domain lifestyle center. 

Jim Butler, a founding partner of Jeffer Mangels Butler & Mitchell, whose firm worked on the Tysons Corner Center project, said the common thread among these successful hotel-retail combinations is they involve a large regional shopping center that has a sense of “destination.” 

The Mall of America outside the twin cities in Minnesota certainly qualifies, and Carlson Rezidor Hotel Group and equity partner Mortenson are looking to take advantage with their $137.5-million 500-room Radisson Blu Mall of America, which opened last month.

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