From trends alerts to tax credits, here’s how the right partnership with a general contractor can keep profits up and maximize ROI
a quality general contractor for your next hotel project might seem like a daunting task amid an environment of skilled labor shortages and new construction seemingly happening on every street corner. But sources say the feat isn’t impossible with a little know-how and some dedication.
CAST YOUR NET
It starts with establishing relationships, according to Eric Bullion, vice president of Pepper Construction Group in Chicago, IL. “The best way is to establish a relationship early on in the process. When you are thinking about doing a project, determine what kind of contractor you want to work with, and then pick someone you want to partner with,” he said.
For independent owners and operators, Bullion suggests attending local summits or conferences that feature sessions on hospitality or commercial real estate. “That’s a great way to connect and understand the market and meet those familiar with the local area,” he said, adding that general contractors are attending these events just as frequently as owners in order to make connections and drum up business.
Beyond attending events, Bullion advises it’s wise to cast a net out to your own network of fellow owners and architects. “A lot of the connections we make start with, ‘I was talking to so-and-so who is going to renovate or build,’ and we figure out how to reach out to them,” he said. “Owners should put out feelers to their network and connect that way.”
Alan Rae, general manager of independent Hotel Clermont in Atlanta, GA, who was involved from the beginning of the property’s adaptive-reuse process, says that the relationship with the construction company needs to start before shovels hit dirt. Early partnership can be especially helpful for hoteliers who are seeking tax credits. Hotel Clermont, managed by Charlestowne Hotels, took advantage of a tax credit allowance for historic structures. Rae says the construction company for the project acted as a partner in the process, joining in on conversations with the historic and preservation societies.
“It was a collaborative effort and the construction company made sure we weren’t making promises that we couldn’t keep,” Rae said. For example, the hotel’s building housed a historical staircase that the historic society wanted to preserve. However, the construction company brought valid concerns to the table about violations with local code. “Because that conversation took place at the very beginning of the project, we were able to navigate those challenges from the get-go.”
And because the company was local to the area, Rae says the team was aware of all the rules and codes – a benefit to partnering with a local firm. “On other projects, we’ve worked with bigger companies, but there was a disconnect with what was happening locally,” he said.
Additionally, he says any project will face its red tape, and local companies have connections in the area to help cut through it. “They know who to call. The construction company is critical to making sure you get the right permit and speak to the decision-makers so you’re not getting lost in an email inbox,” Rae said.
PARTNERING ON PROFITS
Working with the right construction partner also can lead to increased return on investment, sources say. Construction companies stay up to date on the latest trends, understand how to work with designers, and hold the expertise and lessons learned from other projects that they can share with clients as a guide to save money.
“Owners and developers are hiring us to spend their money, and we want to spend their money as wisely as possible and how they would spend it,” Bullion said. That’s why he reiterates being engaged as early as possible is key. “We can understand their design and know how to do something more efficiently.”
For example, if the design team wants guestroom floors to have a wood-look to them, he says the construction company can suggest reasonably priced options. Luxury-vinyl tile that mimics wood would be more affordable at $8 per square foot vs. real hardwood floors at $28 per square foot, he says. “We understand the trends and where today’s markets are going. It’s things like not putting carpet throughout rooms because that’s not what guests want.”
Bullion adds that hiring a general contractor pre-construction does cost some money – at his firm, about $100,000 for a feasibility analysis – but it can lead to a clear ROI before costly decisions are made. He cites a recent project where the mechanical engineer designed a $700,000 system at a 125-key hotel that would typically cost about $150,000.
“Because we were on board doing pre-construction we advised owners on the specs for what they needed and saved them close to $600,000,” Bullion said. “It’s our role to advise owners of what certain choices can mean so they can make an educated decision. “Should I spend more money on this feature because it’s going to give back more in revenue when we open? We can help answer that.”
KNOW YOUR TAX CREDITS
Rae says these partnerships and relationships are critical when going after tax credits, too. Hotel Clermont wouldn’t have been opened without the $5-million credit it received, but that high-value credit wasn’t always known to the team. In 2015, the Georgia General Assembly passed House Bill 308, raising the maximum tax credit allowance for historic structures from $300,000 annually to $5 million. That change gave the green light the project needed, and Rae says it wouldn’t have been discovered if that local knowledge from the team were lacking.
“As much as there are national tax credits, this wouldn’t have happened if this local tax credit weren’t researched and discovered,” Rae said. “Local relationships between owners and the construction company and all the people on the ground made it possible.”
But once those tax credits are awarded, Rae says the construction company can help navigate the process and find a balance so that all the revenue-generating elements of the hotel that lead to high ROI can fit within the context of the requirements. He points to Hotel Clermont’s rooftop bar.
“There were lots of restrictions of what can be visible on the exterior of the building,” Rae said. “We had to make the decision of whether we installed a rooftop bar that’s covered with rentable space for 12 months of the year, or do we work with the historic society and not build a fully visible rooftop, which means it’s only usable in the summer months. We had to balance tax credit requirements vs. long-term profitability.”
With the construction company’s guidance, the team decided to meet credit conditions with a semi-covered space that wasn’t visible from the street, giving them the ability to open up the space for the entire year in order to drive revenue.
“The construction company helped to figure everything out because none of us had the answers,” Rae said. “It was a collaborative project, and they could draw on their experience from all their different properties throughout country and implement the best practices. The construction company helped come up with creative solutions.” ■
TAKING THE FIRST STEPS
Knowing where to start can be the hardest step for independent hoteliers who do not have the support of a franchise’s opportunities. When looking for construction companies, take the following steps first:
- Network: Look to your own personal network of hoteliers and ask who they might recommend.
- Look for cost-effective measures: You’re going to spend money. But look for companies who offer cost-effective solutions for what you may want, such as offering vinyl that looks like wood vs. real wood floors.
- Know your tax credits: States vary in the amount and qualifications in tax credits for businesses and hospitality. Look into tax credits that may be available in your area.