Luxury hotels funding upgrades to stay competitive

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With the current rebound in the luxury lodging segment and analysts’ projections expressing confidence going forward, owners of luxury assets are increasingly prepared to invest significant amounts in renovations and upgrades to keep their hotels and resorts competitive.

Another factor in their favor is the steep cost of developing luxury product from the ground up. Land costs are extremely high in gateway and other prime destinations, due in part to the scarcity of desirable building sites. High barriers to entry in these locations, including zoning restrictions and environmental concerns, are another concern.

With modest levels of supply growth on the horizon, relative to other industry segments, owners of well-situated luxury products know that their assets are only likely to appreciate in value, assuming they’re well maintained.

Lodging Econometrics confirms that, through the end of the second quarter, there were 42 luxury projects in the U.S. construction pipeline, a drop in the bucket compared, for example, to the 1,549 projects in the upper-midscale pipeline.

As part of the deal to acquire the historic Waldorf-Astoria Hotel in New York this year from Hilton Worldwide for a record-breaking $1.95 billion, the Chinese insurer Anbang Group said it would invest additional multimillions of dollars to extensively upgrade the property, which dates back to 1931.

San Francisco’s Palace completes reno

On the West Coast, meanwhile, owners of another historic luxury hotel, The Palace in San Francisco, this month announced the completion of a sweeping renovation estimated to cost $40 million. The 556-room Palace is part of The Luxury Collection Hotels & Resorts, a soft brand that, in turn, is part of Starwood Hotels & Resorts Worldwide.

With a significant amount of equity in the Palace name, Japan-based owner Kyo-ya Hotels & Resorts opted to invest in redesigned guestrooms and public spaces. Included among the public spaces is the hotel’s well-known Garden Court food-and-beverage outlet, which has been divided into a lounge and separate dining room. As part of the renovation, two high-end suites were added to the rooms inventory.

Other changes include a refresh of the hotel’s indoor swimming pool and an expansion of the property’s fitness center to suit the preferences of today’s luxury traveler.

In discussing the upgrades, Luxury Collection global brand leader Hoyt Harper speaks of trying to incorporate “a new age of contemporary glamour” into the hotel. Where luminaries like Andrew Carnegie, Henry Ford and Thomas Edison stayed at The Palace in earlier generations, Harper wants to target the “tech titans” of today and tomorrow, many of whom are based in San Francisco and nearby Silicon Valley.

Committed to upgrades

As for The Luxury Collection as a brand, Harper sees investing in what he calls “landmark hotels” like The Palace not an option, but a commitment.

Kyo-ya Hotels & Resorts is of similar mind. The Palace is one of six hotels in the company’s portfolio, the other five being located in Hawaii. The historic Moana Hotel, which opened in 1901 and is known as the “First Lady of Waikiki” on the island of Oahu, is the flagship. It’s one of three buildings that make up the Moana Surfrider, a Westin Resort & Spa.

Also on Oahu, Kyo-ya owns The Royal Hawaiian, the Sheraton Waikiki and the Sheraton Princess Kaiulani. Like The Palace, the Royal Hawaiian is part of The Luxury Collection. Westin and Sheraton are both Starwood brands. In recent years, Kyo-ya has invested an estimated $300 million in upgrades to its Waikiki assets. (Its fifth Hawaiian hotel is the Sheraton Maui Resort & Spa.)

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