Companies are increasingly borrowing practices from the hospitality industry in order to attract and retain tenants and residents of all sorts. To address the topic, ULI New York convened a panel titled “The Hotelification of Real Estate,” held in June at the Shearman and Sterling offices in Manhattan, featuring a range of experts with specialties spanning commercial, residential, and mixed-use development.
Moderator Ellen Sinreich, founder and managing principal of the Manhattan–based consulting firm the Sinreich Group, said that the panelists agreed “that ‘hotelification’—in other words hospitality and amenities---are a way to differentiate their properties and improve their bottom lines.” These practices, which begin with how a company finds space, customizes it, and gains entry to it, expand to include the equivalent of room service and other services that go well beyond the traditional purview of the landlord but are routine at high-quality hotels.
Ryan Simonetti, chief executive officer of Manhattan–based Convene, which offers premium workspaces to companies and building tenants, contrasted searching for a hotel room for the night with finding space for a business, comparing the ease of using Airbnb with the complications of commercial searches. “Has anyone gone through the process of signing a lease, designing space for a building? How cumbersome is that process for the end user?” he asked.
“At Convene, in the next 90 days you can go online, find a space, design your space, buy your space, and at a click of a button your service contract is done,” he said. “Move in a week—that’s a fundamentally different way to deliver the office as an experience.” He added, “We like to think of ourselves almost like a hotel brand but for offices.”
David Barry, president of Ironstate Development Company, based in New York City and Hoboken, New Jersey, noted that people think about boutique hotels when they talk about the hotelification of real estate. “It’s what happened to [the hotel] industry 20 years ago, where the product became emotionally connected to the consumer, to the guest, as opposed to just being commoditized, sanitized, heads in beds, which is what the old brands had.”
Though some practices can be standardized more effectively in ways resembling the operations of hotels, the point is not economy of scale but differentiation through increasingly personalized service and amenities.
Craig Deitelzweig, chief executive officer of Marx Realty, a Manhattan-based real estate investment, development, and management firm, cited the monotony of the office lobby.
“If you look at a lobby 50 or 60 years ago, it looks kind of the same as a new development today,” he said. “They’re all white marble or gray marble. If they’re crazy and they’re all super bright, you almost feel like you’re going to a doctor’s office with the lighting. What we wanted to do was really change that up and make it warm and inviting and welcoming, so our buildings don’t have any white marble; we don’t have bright lights.
“We look at hotels for inspiration, and the reason for that is, really, hotels are spaces that make you feel good.” The approach is modeled on hotels in several particulars, he said. “Our buildings have doormen outside like you would see in a hotel. We have oversized doors; we have a marquee, not a canopy.”
One thing the buildings do not have is turnstiles. “We don’t believe in it,” Deitelzweig said. “We think it’s sort of governmental and not welcoming.” This places a premium on good doormen, adept at recognizing and welcoming tenants, he said. Instead of hiring doormen through security groups, his firm hires through hotels.
Marx lobbies have walnut, brushed brass, herringbone floors, and flowers and plants—and no white marble. “It goes upstairs, as well,” Deitelzweig said. “It’s holistic throughout the entire property. It’s the attention to difference that makes a difference. As a result, we’ve been able to obtain really premium rents.”
The resemblance to hotels does not stop there, he added. “We curate the food also: we have an app delivering cappuccinos and avocado toast—kind of like room service,” he said.
The key at large developments like Hudson Yards in Manhattan and Related’s Santa Clara development in Santa Clara, California, is not standardization but intense and specific attention to local circumstances, customers, tenants, and clients, said Ken Himmel, chief executive officer of Related Urban, a developer of large-scale mixed-use properties.
“At the end of the day, I think a lot of people who don’t work on these complicated mixed-use projects may think that the scale of the project, just the sheer size of it, creates an opportunity to simplify or make more money out of what you’re doing just because of the scale of it,” he said. “It’s just the opposite. It’s so much more complex; it’s incredible.
“It’s about the full breadth and depth of hospitality being integrated with the program, which covers a wide variety of program uses,” he said. “You always start with the programming. No one can begin planning or designing a project without understanding what the programming is. These programs are not very flexible.”
He noted that no two projects are the same. “That’s what I love about our business compared to what has happened with the commodity mall business where everybody had a formula,” he said. “When they got a formula, they thought they had it right, and they did 40 of them.”
Because Himmel’s mixed-use projects have frequently included hotels, it is no surprise that he has borrowed from hotel practices. The tailoring of each element to the local market is one practice adapted intensively from that industry—a process that often involves more initial effort. “For us, the most innovative part of the programming usually works around hospitality, and we differentiate hotels,” he said. “So in Santa Clara, I’ve got a 460-room Conrad convention hotel and I’ve got an Equinox hotel.” Equinox health clubs, from which the hotel chain originated, are a standard amenity in his undertakings and not coincidentally mimic gym offerings at other hotels.
“The next biggest amenity is to provide food and beverage—creative food and beverage: not just the most expensive food and beverage, but a wide variety depending on how big your project is,” he said. “There’s a direct relationship to the quality of the operator . . . and the amount of money you have to invest to do it. You cannot do triple-net leases with these guys, so most creative combinations or curations come from understanding the business. . . . Today, I spent as much time on two restaurants at Hudson yards as I did on my $9 billion project in Santa Clara. It’s a price you pay for delivering an experience at your projects that no one else will deliver.”
He noted that profits yielded from such efforts can be considerable, but that close attention to the product is required at the outset. “These are crazy, wild undertakings, and you have to staff yourself to be able to do it.”
Barry noted that standardization often can cost more than bespoke efforts, with standard amenity spaces—he cited a golf simulator as an example—frequently going unused. “I think there’s a military industrial complex that occurred between marketing people and interior designers where it’s just like, ‘Let’s put new stuff in this,’ and nobody’s really thinking about how it’s going to be used or operated.”
Customization must involve both attention to a tenant’s wishes at the outset and data-driven monitoring of what works for them, Simonetti said. Hotelification need not involve massive outlays of money, he added. “You can create a good human-to-human experience where when I show up, I get a person who greets me and says ‘Hey, how are you?’, where the property manager is kind, where I can pay my bills easily.”
One area the panelists disagreed on was the length of leases. Convene focuses on a “forgotten middle” of tenants, whose space demands are modest, Simonetti said. “If you’re an occupier under 20,000 square feet [1,900 sq m], you should never sign more than a two- or three-year lease agreement,” he said. “It’s impossible to predict where your future’s going to be.” Shorter leases have delivered higher profits, he noted. “We just had our first wave of big renewals, and our renewal rate was 98 percent, he said. “Each one of those companies committed to a longer rental, and they paid more.”
Deitelzweig outlined a different approach. “We are a little concerned about some of the short-term occupancy for office tenants,” he said. “In the hotel world when things get bad, those short-term stays are really troublesome. When it gets bad, the hotel industry is the first to feel it. Our model is not that short term; it’s to have tenants that are there for the duration so we have economic success even when the market goes south.”
One area of agreement was straightforward: revenues. All pointed to leasing and rental premiums from delivering a personalized service. “Because we’re highly amenitized, we have trophy-like rents,” Deitelzweig noted. These properties leave much more than a light on for you, and reap rewards in the process.
