Design investment v. ROI: ‘Every dollar must have a return’

When discussing ROI in hotel design, Maki Bara, president and co-founder of San Francisco-based Chartres Lodging Group, said it’s not only key to know what your customers think is important but to evaluate where your investments will have the best return. 

“Every dollar must have a return for us,” Bara said at a panel at last week’s first ALIS DESIGN+ conference in Los Angeles. “In a perfect world, we would do everything, but we wanted to prioritize the touch points that are most important to our most valuable customers. Then, with finite funds, how do you get that wow moment in a public space so you get a little bit more bang for your buck?”

Bara said that could be especially true when considering design for public spaces versus guest rooms, where any design investment will have a multiplier. 

“Maybe it’s only a $100 item in the room, but multiplying it by 1,000 becomes a much higher budget item,” she said. “Whereas if you took that and spent it all in your lobby, which everybody goes through and sees, it’s your first impression. Perhaps that’s a better use of the same funds.”

Bara was part of the panel “Views from the C-Suite: The value of design in the race for ROI,” which also featured James Bermingham, CEO of Miami-based Virgin Hotels Collection; Ken Cruse, founder and CEO of Laguna Beach, California-based Soul Community Planet Hotels; and Jeff Wagoner, president and CEO of Honolulu-based Outrigger Hospitality Group. Chip Rogers, president and CEO of the American Hotel & Lodging Association, served as moderator. 

Design as an investment

The panel was asked about how they approach design from an investment perspective. Bermingham said it depends on whether the project is a new-build or conversion. 

“We’re very much return-driven and invested in all but two of the hotels we operate. So, we think like owners,” he said.  

“On the ground-up, it’s how do you maximize the spaces to drive premium pricing, especially on the ADR side, and incremental revenues on the F&B and entertainment spaces?” Bermingham said. “On a conversion, we’re looking at a great opportunity right now, where we’re planning the PIP over a seven-year cycle. What do we need to do immediately? Then, what can we do throughout the normal five-to-seven-year capital planning cycle? Whatever makes the most sense from a brand perspective but super-balanced to get us a return.”

Every dollar has to have a return for us. In a perfect world, we would do everything, but we wanted to prioritize what are the touch points that are most important to our most valuable customers. Then, with finite funds, how do you get that wow moment in a public space so you get a little bit more bang for your buck?

Maki Bara

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Cruse said it’s often about finding limits to what you can and can’t do initially. “Where to start and stop is probably the most important consideration I have when bringing design into the process, largely because design is just so fun,” Cruse said. “There’s so many great things that you can throw against the walls and say, ‘Hey, we should do that. Let’s do that.’ 

“Ultimately, sometimes the desired outcome will outweigh the economic returns you’re going to get. So, it comes down to, ‘What do you do now? What do you put on our ‘nice to have for the future’ list?’ Maybe you pull that out in two to three years, once the other stuff has been proven out, and you layer it on incrementally instead of trying to do it all at once.”

Wagoner said it could also depend on whether the renovations are aggressive or defensive for the hotel’s place in the market. “Some of the design and the renovations you’re going to do will be defensive. They’re going to keep you where you’re at. They don’t necessarily propel you past today’s environment,” he said. “Then there are others where you may have an average rate spectrum that’s broad in the market. If you improve your assets significantly, you can increase your rate.

“You can put $80 or $100 million into an asset and then get the return by increasing your ADR by $100 or $200,” Wagoner continued. “You’d have to understand the appropriate underwriting early on, and then where you can get to once you invest those dollars into the property.”

Bara said it’s finding a balance between the different stakeholders, which could mean limiting ‘dead’ space and enhancing more revenue-generating space.

“The brand comes from a brand emphasis. We sometimes agree with everything, and sometimes we’d like to make little tweaks that would gear our scope to a return on investment,” she said. “So, obviously, that means something translated to a higher rate or, 'How can we justify a higher rate, loyalty and occupancy?’ Then how do we activate space so that we’re utilizing all of the square footage in our hotel to be revenue producing?”