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Hotel Lawyer on Green Hotel Development: Green hotel development is profitable now! Inspirations from the pioneers make it dangerous NOT to be “green”

Author of www.HotelLawBlog.com
21 March 2007
We have talked about a lot of important subjects here on www.HotelLawBlog.com, like hotel management agreements controlling the value of an asset (see “5 Milestones Marking The Road To Success For Hotel Management Agreements“), but I believe we may be on a new frontier where “GREEN” will be more important and faster than anyone ever imagined. It will be faster and better than Gore inventing the internet highway!!! With better results for all our lives and no less phenomenal growth.


For those who are pioneering the movement, “green” hotels are more than just politically correct properties: they inspire guests, connect communities, and yes …they are profitable. Profitable? YES! Profitable! A few years ago everyone asked how you could possibly afford to go “green” because of premium costs without premium revenues. Now, the question may have turned. Can you afford NOT to build “green”? And the answer may surprise you . . .

So what are green hotels?

That was the first question posed to a panel of green hotel and spa developers at the recent Hotel Developers Conference in Rancho Mirage.

According to Wen-I Chang, President of Altman Hospitality Group Inc., whose company built the unique Gaia Napa Valley Hotel and Spa, green is a “mind set.” In the past, Mr. Chang developed hotels that now operate under the Hilton and Holiday Inn brands. But the Gaia hotel is one of a kind — a fully environmentally sustainable hotel — a model of what a green hotel can be.

The hotel was built with sustainable and recycled materials: new growth lumber certified through the Forest Steward Council (FSC); paint, sealants, carpets and adhesives with low VOC (volatile organic compound); carpets, tiles and granites that include recycled materials. All construction waste from the project was recycled. A ductless energy system, and lighting with solar tubes provide the hotel with big savings in energy costs. The hotel has achieved a 46% reduction in water through low flow showers and toilets, and the property’s koi pond uses recycled water from the site, which is filtered and cleaned prior to entering the pond.

Green relates to the community

Deirdre Wallace, President of the Ambrose Group LLP, is at the forefront of developing “eco-boutique” hotels. After the successful launch of The Ambrose Hotel in Santa Monica in 2003, the company is developing the Ray Hotel In Venice, California, which has been called the “greenest urban hotel” in the U.S. Deirdre believes that “greenness” is linked with community. “It’s about our history and it’s about our legacy,” she says. “Building green puts back the green that development takes away.”

While local communities often fight against hotel developments in their backyards, the Ray Hotel was embraced by the Venice Beach community in its earliest stages. “We made a point to go to the community early and to work with them to develop a property that added value to the community,” she says.

The building for the Hotel Ray was remasked, and open space was created on each side of the hotel. A special variance from the city allowed the Ambrose Group to built up instead of out. Solar panels heat the pool and power the rooms’ fans. A green roof provides good insulation for heating and cooling, as well as herbs for the hotel’s 99-seat organic restaurant. A museum shop selling sustainable design goods is going in, as well as an art gallery. “Venice is an artistic community,” Deirdre says, “and we want our property to reflect that.”

The role of LEED

The projects of both Wen-I Chang and Deirdre Wallace were developed using LEED standards, the nationally accepted benchmark for the design, construction and operation of green buildings. LEED (Leadership in Energy and Environmental Design) standards are set forth by the United States Green Building Council (USGBC), a coalition of building industry leaders that promote green buildings and provides LEED certification to projects meeting their criteria. “There are no special LEED standards set for hotels,” says Wallace. “But their guidelines still apply.”

Tom Ito of the architecture and design firm Gensler, knows what it takes to design a green building. “For every project we undertake, we look to the LEED certification guidelines,” he told the audience. “Green buildings can be accomplished if you design your project with the right attitude.” Specifying the use of building materials that are recyclable and making sure that waste from a project is recycled are two processes that go along way to getting LEED certified, according Tom.

So what does it “cost” to be “green”?

But what does this cost? Tom Ito says that LEED rated buildings do not necessary cost more than others. Their firm’s City Center project received generous tax breaks on the property as well as on the sales tax of construction materials. When you also factor in the long-term energy savings from green projects, he says, “Green hotels are not as costly as you might expect.” The Ambrose Group also were the beneficiary of tax credits for the Hotel Ray project.

And does “green” work with luxury hotels?

Ralph Newman of WTS International Inc., a company that provides spa design and management to properties that include the Hilton Grand Vacations Club in Las Vegas and the PGA Tour Spa Laterra in Florida, says his company is still feeling its way as to what green means for spas. “Products like chlorine have been essential to spas,” he said. “Now we are asking, how do you build, clean and maintain a green spa?” WTS looks at everything a spa guest touches to determine greenness, including sheets, robes, and food.

Active in the spa, fitness and wellness community since 1978, Ralph developed and managed The Four Seasons’ flagship spa and fitness facility at their Georgetown property for more than a decade, and he understands the importance of market studies and meeting consumer’s needs. “Spa guests expect a spa to be a healthy environment,” he says. But do they choose to go to spas or hotels based on their greenness? He cited a study by the International Spa Association (ISPA) that showed greenness is in the top 3 considerations for Canadians when choosing a spa. But U.S. spa-goers aren’t quite there yet.

WTS is building a green spa in the Seattle area, a market that seeks out green products. And while much of the West Coast is moving in that direction, the country needs more education. “How do we promote greenness when it is not a well-defined term among our consumers?” he asked the other panelists.

“You still have to satisfy the customer’s needs for luxury, says Deirdre Wallace. “But if they have to choose between us and a similar hotel, many of our guests will choose us because we are green.”

“We don’t sacrifice luxury at the Gaia Hotel, either,” says Yuan Sing Chang, project manager for the Gaia Napa Valley Hotel. The panelists agreed that guests at green hotels expect just as much luxury and pampering as they do elsewhere. Ralph Newman emphasized that going green is a value decision. You have to think it through for every part of the project: the rooms, the spa, the restaurant. Where do you find vendors? Contractors?

“When we started out five years ago, the supply of green items was limited and there were not many competent consultants in the area,” said Wen-I Chang. Now, there are very competent green contractors, according to Tom Ito of Gensler, and green materials continue to be developed. But Ralph Newman points out that operational costs are always an issue: “You have to support it at the end of the day.”

A thought that is going mainstream

It was noted that the new ALOFT brand is embracing green ideas with green roofing and preferential parking for fuel efficient cars. And already, many hotels save water and energy by not changing sheets and towels daily for individual guests. Most hotels also understand the value of efficient energy systems and are moving in the direction of optimum efficiency. The demand for green hotels is growing, panelists agreed. “Baby boomers want to be in properties that reflect their values,” says Tom Ito. “And as demand goes up, the price of developing green will go down. “We are learning to design green and beautiful hotels, something that will capture the heart of
Americans,” said Wen-I Chang. “We want to deliver a special experience and a message to the guest at our hotel: after you stay at this hotel, you start your own journey.”

Jim
PS By the way, we think that Green Hotel Development is so important, timely and right, that we are considering devoting our entire Hotel Developers Conference next March 2008 to this subject. I would really like your feedback on your interest and support for this topic. Please, please contact me at jbutler@jmbm.com. with your thoughts or interest in participating in such a program.

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Our Perspective.
We represent developers, owners and lenders. We have helped our clients as business and legal advisors on more than $50 billion of hotel transactions, involving more than 1,000 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or 310.201.3526.

Jim Butler is one of the top hotel lawyers in the world. GOOGLE “hotel lawyer” or “hotel mixed-use” or “condo hotel lawyer” and you will see why.

Jim devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM’s Global Hospitality Group® — a team of 50 seasoned professionals with more than $50 billion of hotel transactional experience, involving more than 1,000 properties located around the globe. In the last 5 years alone, Jim and his team have assisted clients with more than 90 hotel mixed-use projects, all of which have involved at least some residential, and many have also involved significant spa, restaurant, retail, office, sports, and entertainment components — frequently integrated with energizing lifestyle elements.

Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. They are a major gateway of hotel finance, facilitating the flow of capital with their legal skill, hospitality industry knowledge and ability to find the right “fit” for all parts of the capital stack. Because they are part of the very fabric of the hotel industry, they are able to help clients identify key business goals, assemble the right team, strategize the approach to optimize value and then get the deal done.

Jim is frequently quoted as an expert on hotel issues by national and industry publications such as The New York Times, The Wall Street Journal, Los Angeles Times, Forbes, BusinessWeek, and Hotel Business. A frequent author and speaker, Jim’s books, articles and many expert panel presentations cover topics reflecting his practice, including hotel and hotel-mixed use investment and development, negotiating, re-negotiating or terminating hotel management agreements, acquisition and sale of hospitality properties, hotel finance, complex joint venture and entity structure matters, workouts, as well as many operating and strategic issues.

Jim Butler is a Founding Partner of Jeffer, Mangels, Butler & Marmaro LLP and he is Chairman of the firm’s Global Hospitality Group®. If you would like to discuss any hospitality or condo hotel matters, Jim would like to hear from you. Contact him at jbutler@jmbm.com or 310.201.3526. For his views on current industry issues, visit www.HotelLawBlog.com.