Designing lifestyle hotels with ROI in mind

DALLAS — When looking to create incremental revenue drivers during CapEx on lifestyle hotels, Kimberly Miller said the first thing designers should explore is redesigning for flexibility to drive profitability.

“I’m a big believer in what you touch is what you should spend the money on,” said Miller, CEO and design principal of Dallas-based Duncan Miller Design. “Obviously, there’s going to be infrastructure and things like that. But as the designer, you have to be able to look at it not just as pretty design but how it achieves more return on investment.”

Miller was a panelist for the “Investment + Vision = Lifestyle Success” panel at ALIS Summer Update at the Kimpton Pittman Hotel Dallas on July 25. Others on the panel included Richard Luis, managing principal and office director of Irvine, California-based WATG; Laura McKoy, creative director and vice president of interior design for Dallas-based Omni Hotels & Resorts; Leslie Shammas, vice president of development services for Miami-based Virgin Hotels Collection; Jeffrey Stulmaker, partner and chief investment officer for San Francisco-based KHP Capital Partners; and Miller. Mary Scoviak, custom and design content director for Hotel Investment Today, moderated the panel. The BHN Group, the company which operates Hotel Investment Today as part of Northstar Travel Group, is having its second annual ALIS Design+ conference and trade fair on January 30-31, 2025 at the JW Marriott/Ritz Carlton in Los Angeles. 

Then Miller made a comment that struck a chord with the audience: owners should share the financials with designers sooner rather than later. “We have a lot of owners who don’t want to share the budget; they don’t want to tell you what the budget is,” she said. “Tell your designer what the budget is! Let’s decide not to nickel and dime that later; let’s do it from the get-go.”

More money is not going to miraculously appear unless there’s an ROI associated with it. We always encourage designers to come up with ideas that we couldn’t pencil and see if they can make them work because we want to be creative.

Laura McKoy

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McKoy agreed with Miller’s assessment and said it’s often prudent to let an interior designer explore ideas even if they don’t make financial sense in initial projections. “More money is not going to miraculously appear unless there’s an ROI associated with it,” she said. “We always encourage designers to come up with ideas that we couldn’t pencil and see if they can make them work because we want to be creative.”

McKoy also said one concept isn’t going to work from market to market. “We feel very much like our comp set is different in every city. So [we need to understand] what that comp set is and what you’re competing against,” she said. “That may be very different in Dallas than it is in Houston… Where do you want to position yourself and spend your money strategically?”

McKoy finished with an optimistic take on the power of design: “Fabulous design is achievable on a budget.”

When asked what questions the owners are asking her about CapEx, Shammas said function takes precedence over form. “How do they adapt space to suit the function they need it to be? Nobody likes to be in a meeting room that looks like a converted guest room, and how do they create ROI everywhere?” she said. “What is the highest and the best use of the space that we’re doing, and how can we adapt that space to make it a better functioning, better-revenue-producing space within the hotel? Most hotels are very tight… How do we create more functional, usable, flexible areas?”

Luis said flexibility is the most important attribute in refurbishing and reconfiguring hotel public spaces. “Flexibility is key,” he said, while mentioning public spaces that can go from a juice bar breakfast space in the morning to a bar at night. “Or conference rooms that can be utilized for functions, but then can be opened to create opportunities for the audience, to maximize the square footage.”

Now you have this generation of under-renovated and under-improved hotels with broken capital structures. Those hotels can be acquired at a significant discount to replacement costs.

Jeffrey Stulmaker

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Lewis said that in the near future, lifestyle hotels will focus on adapting spaces that work for wellness concepts as well. “Some brands that go for wellness will have the opportunity; maybe instead of having [a guest] go to the spa, they can be served in their room,” he said. “Looking to the future, it’s a trend that’s going to be even more important because there’s going to be wellness products that are not only spas but also health, nutrition and fitness.”

When discussing the hotel M&A market, Stulmaker is struck by how much COVID still affects the industry’s mindset. “We’re actually at a unique moment in time, and an inflection point in the industry, where we’re going on five years since the pandemic,” he said. “It feels insane that we’re still talking about it. But when you think about the level of distress it caused, you have sponsors that used their FF&E reserves for operating shortfalls early on. Now you have this generation of under-renovated and under-improved hotels with broken capital structures. Those hotels can be acquired at a significant discount to replacement costs.”

Stulmaker mentioned JLL statistics on urban full-service hotels and said the cost of buying a hotel in an urban market today versus building one is at its widest disparity in the last decade. “You can buy a hotel right now in an urban market for a 39% discount than what you can build one for,” he said. “But that leaves you with a lot of space to improve that hotel but at a significant discount to replacement cost.”