Pictured: The Study at University City, slated to open in 2016, will be located close to both Drexel University and the University of Pennsylvania.
National Report – Hospitality 3, a hotel development company founded in 2001 by Paul McGowan, continues to expand its Study Hotels brand into university markets.
Hospitality 3’s latest project is The Study at University City, to be built on the corner of 33rd and Chestnut Streets in West Philadelphia, on land owned by Drexel University. The 212-room, full-service hotel is expected to open in 2016.
Unlike many hotel development companies, Hospitality 3 is focused solely on growing its full-service Study Hotels brand, and only in university markets. But that doesn’t mean any college town will do, said McGowan.
“Every university is different and demand generators vary from market to market,” he said. “Many college towns are seasonal, so it’s difficult in the underwriting process to make sense of the markets. Then you start looking at how many markets our concept would work well in, and the field gets a little narrower. Some demand is driven purely by the university, and there are times in the year when there’s no business. We look for markets where there is the strength of the university, plus other generators.” These could be in the form of medical or other research centers that drive conferences.
In the case of University City, it’s really two schools that will generate business—Drexel and nearby University of Pennsylvania. This is in addition to The Children’s Hospital of Philadelphia. At Yale, there is the well-regarded Yale–New Haven Hospital.
The Beginning and Future
The seeds of Study Hotels were actually planted during a stretch when McGowan and his daughter were visiting colleges. “We were disappointed with a lot of the accommodations we encountered,” he said. “I started to think: What is a visitor to a university market looking for? What are their needs? We want to create an environment suitable to the types of visitors to those campuses.”
Pictured: The lobby at The Study at Yale has a decidedly bookish feel. The hotel opened in 2008 amid the economic downturn.
Study Hotels’ mantra of “read, rest, reflect” will be on full display at the Philadelphia property. The 145,000-square-foot hotel will have approximately 7,000 square feet of banquet/meeting space, a 105-seat corner restaurant and bar (there will also be room service), and a fitness center. Hospitality 3 is collaborating with Philadelphia-based architects DIGSAU to design the hotel. Of the 212 rooms, 11 so-called Studies will have small reading dens, too. “There is a literary slant to what we do,” McGowan said.
Unlike Yale, The Study at University City will be a new-build. “Yale was a real estate opportunity,” McGowan said. “We identified an asset available off market, with a solid location, and we looked at how we could refashion it.” Hospitality 3 added two floors to the once-independent hotel, and upped the key count from 87 to 124.
What’s in store for Hospitality 3? McGowan is coy, only revealing that the company has an “open dialogue with a number of universities,” and is currently “finding creative ways to secure sites.”
While location is, of course, the main ingredient that must be satisfied before a development can get underway, along with financing, McGowan said he has a preference for conversions, not only because they tend to be cheaper, but because “they tend to be in better locations,” he said.
Currently, Hospitality 3 develops, owns and manages each property, but McGowan said that trifecta could dwindle. “The model right now is owning and operating,” he said. “We do see opportunities in the management realm in the future, as we scale up. Right now we are focused on identifying good opportunities with strong demand in markets that will embrace what we’ve done at Yale.”
The Allure of University Markets
The rah-rah culture of a college town might be enough to cajole high school graduates, but for a hotel developer, a deal has to make financial sense. University markets do benefit from months of high demand, generated by the school nearby, and can doubly benefit from other nearby attractions, including medical and research centers that can spawn conferences and other related travel. Hotel Management looked at university markets as a whole last year and interviewed Jim Merkel, the president and CEO of private equity firm RockBridge Capital, which has exposure in university markets, including recently overhauled aging properties at the University of Minnesota, the University of Michigan and the University of Iowa. “From our perspective, we’ve always been attracted to university towns because of the dynamics of consistent demand, its counter-cyclical [nature], and fewer barriers to entry,” said Merkel. “As a result, [these properties] produce strong cash flows and steady returns once you get the product positioned correctly in the market.”