TORONTO — Investors are looking at smart ways to enter high-barrier entry markets like Toronto, Vancouver and to some degree Montreal. How do hotel companies find the right mixed-use projects to integrate themselves into what makes economic sense for all constituents? One of the panels at CHIC 2019 came up with some possible solutions.
First, let's set the stage. Canada has just been through 2018, which was a record-breaking year. Supply was up 1.0 per cent, or $160.8 million. Demand was up 2.0 per cent or $106.7 million. Occupancy was up 1.0 per cent to a record 66.3 per cent, while ADR rose by 4.3 per cent to hit $163 and RevPAR went up 5.3 per cent to $108. At the CHIC conference, Rob Kumer of Kingsett Capital noted that we have had 8.5 years, or 104 months of RevPAR growth.
The CHIC panel on mixed use development was moderated by Sylvia Occhiuzzi, senior associate, CBRE Hotels. Panellists came from a variety of backgrounds. They included Marc Varadi, president, RIMAP Hospitality Services Inc., an innovative Montreal based hotel management company that is one of Montreal's largest hotel operators. Geoff Matthews, SVP, High Rise Development, Great Gulf Group of Companies, broadened the focus of the panel since they work on a number of mixed-use developments. Peter Clewes, managing partner & design director, Architects Alliance; and Greg Doman, SVP, development, North & Central America, Luxury Hotels Americas & Residential, Accor, represented the design and brand viewpoints respectively.
Benefits of mixed use
Matthews saw some major benefits of mixed use, saying it is complementary to retail and office, and adds value if you have the site to permit it. “It makes good common sense, because it is a hedge against larger risk — it helps mitigate some of our exposure and has a big bearing on how we underwrite our projects.”
Varadi said the biggest challenge is space management in the original design — the building part is easy! He added they use mostly hotel rental apartments, and that there's demand from people want the cachet of living next to a Four Seasons or a Ritz-Carlton.
Doman said that on the luxury side, hotel use is not always the only use. “I love having residential business because [the residents] become brand ambassadors.”
To share space or not to share?
Varadi said that hotel and rental works very well as long as you keep things separate.
Clewes, whose company has worked on projects ranging from the Toronto Four Seasons to social housing, noted that there are interesting synergies when you amalgamate the two uses. Hotel and residents cross subsidize each other. For the residents, there is the cachet of being close to the hotel. But there are also anecdotes where each of them is frustrated with the other and want to be separate. For example, one resident used a certain machine in the fitness centre for his workout, and was frustrated when a hotel guest used his machine.
Matthews suggested that you do need a separation; that it's important to maintain the aura of being next to a hotel but keep the amenities separate. That creates its own set of issues, since owners want to make as much revenue as possible, creating programs and services that will draw both guests and residents into the complex. Duplication is costly.
“If you integrate a lifestyle brand with smaller rooms and bigger food and beverage, then those might be suitable for mixed use,” said Doman.
What will coworking space replace?
Doman said coworking space complements a mixed use development, but doesn't replace anything except maybe a bit of office space. Coworking revenues make for a more efficient office program.
Can we put Airbnb in the mix?
Varadi said his company gets a lot of use by people renting on Airbnb or Sonder. They have franchise agreements limiting this, saying no short term rentals allowed as it causes direct conflicts with the hotel business. Airbnb is much like a distribution channel, with the same set of roles. If you do have a stacked mixed-use development, you don't want competing uses.
Airbnb is discouraged, said Clewes. “They're ghost hotels with none of the management controls of hotels. I troll Airbnb to find out if units I own are being used for this purpose. There's a huge conflict, because people are not acting like they are in a principal residence.”
Building on a big box parking lot, a barge or a prison?
Clewes would choose the big box lot, giving the example of a Pickering shopping centre that was done over to include a block or street structure with a library, performing arts centre, 120-room hotel and community centre. “In 25 years, the shopping centres will cease to exist and there will be a new downtown for Pickering, with retail discombobulated.”
Doman said he would choose the prison and make it into a hostel concept such as Accor's Jo&Joe. “I'd take a hard look at a hostel and coworking space. It requires only 10 square metres for a bed. I'd put it near a university.”
A barge has no land value, said Matthews. He'd look fo a space where there used to be a K-Mart or some other vestige of the '60s and '70s. “There are amazing opportunities for this real estate.” For example, in Oakville, they demolished Bronte Village Mall and made 600 apartments with a Rexall drugstore and Sobey's next door.
Varadi would choose the big box parking lot as well. “These areas are typically lower cost than downtown. I'd take it down in small steps and let it grow organically.”