A Room With a Past: How to Reuse Historic Buildings as HotelsMay 27, 2014 by Daniel Harris
Every hotelier wants to manage a property that’s architecturally stunning, conveniently located, energy efficient and memorable for guests—but how can you achieve these goals while also saving money on design and construction? One increasingly popular way favored by major hotel brands such as Marriott, Kimpton and IHG is to convert a historic building into a hotel.
Repurposing an existing structure, a development strategy known as adaptive reuse, can make more sense from a financial standpoint than constructing a new building from the ground up. Adaptive reuse is also more sustainable than traditional development strategies.
In addition to saving time, money and labor on design and construction, hoteliers can qualify for tax credits that assist with the costs of restoring historic properties. Transforming a historic building into a hotel also makes the property a destination in itself, which can attract more guests.
The easiest way to find a historic property is to use online resources like Historic Properties or PreservationDirectory.com. While a wide range of buildings have been converted into hotels, some types work better than others. We spoke with a number of experts in the field to learn what to look for when considering historic properties for adaptive reuse.
Ask the Right Questions When Evaluating Properties
Before making a decision as to which property you’re going to restore, there are a number of key questions to ask in order to determine whether or not it’s in fact viable for use as a hotel.
Where is the building located?
Beyond their architectural and historic appeal, a number of older commercial structures offer a vitally important asset to hoteliers: location. Downtown is frequently the first area of a city to see substantial investments in construction, so historic buildings tend to cluster around a city’s economic heart—thus ensuring that guests will have easy access to restaurants, shops and business hubs.
Hal Fairbanks is the VP of acquisitions at HRI Properties, a real estate development and hotel management company that has worked on adaptive reuse projects with brands such as Hilton and Starwood. He explains that the historic core of a city is often desirable for guests because it’s designed to be easily walkable.
Walter Keller, owner and innkeeper of the Lumber Baron Mystery Mansion, adds that it can be easier to receive tax credits for rehabilitation costs if a building is located in a recognized historic district.
Keller purchased a once-splendid mansion in Denver that had been constructed in 1890 as a showcase for a lumber merchant (each room was finished with a different type of wood) before being converted into tenement apartments in the 20th century.
Because the mansion was located in the historic Potter-Highlands neighborhood, Keller was able to receive a federal tax credit that covered 20 percent of the restoration costs to transform it into a bed and breakfast.
In some cases, a building can also be moved if it has enough historic interest to merit such an involved process.
Sharon Hinson of Historic Properties notes that there are a number of spectacular historic buildings suitable for hotel conversions that developers have overlooked because of their remote location. Such structures can be found using the “to be moved” search filter on real estate websites such as her own.
For example, Al Robert, owner and innkeeper of The Cajun Village Cottages, moved a number of shotgun houses constructed around 1900 from Baton Rouge to Sorrento, Louisiana to create a bed and breakfast. The process involved getting approval from at least a dozen utilities and government entities.
The Cajun Village Cottages in Sorrento, Louisiana before and after restoration
(photos by Ray Baker)
A building can still qualify for a substantial federal tax credit if it’s moved, provided the National Park Service (NPS) certifies it as a historic structure. As Robert notes, however, moving a building can sometimes be more expensive than constructing a new one because of the permits involved in the process.
What was the building’s original purpose?
The National Trust Community Investment Corporation (NTCIC) is a subsidiary of the National Trust for Historic Preservation, which has been involved in nearly $700 million of historic property investments. NTCIC founder and president John Leith-Tetrault notes that seven of the nine investments in hotels the NTCIC has assisted with were former office buildings, and that department stores are also excellent candidates for adaptive reuse projects.
In order to receive a federal tax credit for rehabilitation costs, however, the original purpose of the structure must still be legible in the finished project. In other words, Leith-Tetrault says, “a school must still read as a school” through the preservation of spaces such as a gymnasium or auditorium.
As he points out, however, “maintaining spaces that you can’t use can feed into your operating costs.” One solution to this problem is to look for a building that has already been renovated multiple times. “Once the original interior has been taken out, the Park Service doesn’t care what you do with the interior,” Leith-Tetrault says. This gives developers much more leeway for new additions.
Fairbanks of HRI Properties adds that “preservation ordinances and incentives at the federal level are pretty exacting because they govern any public areas of a building.” (That is, unless such areas have been gutted in previous renovations.)
In order to remain in compliance with the standards established by the the Secretary of the Interior, Fairbanks recommends looking for structures such as warehouses and industrial buildings, “where you don’t have much space that was ever open or available to the public that’s of any architectural merit.”
Former office tower at 225 Baronne Street in New Orleans before and after rehabilitation by HRI Properties as a mixed-use building including apartments and an Aloft by Starwood hotel (second view is a projected rendering; the building is still underway)
What types of rooms does the building have?
When evaluating historic properties, Leith-Tetrault says the major architectural features hoteliers should focus on are lobby and meeting spaces. “An inviting lobby space that makes an impression on the visitor is important, especially if it’s an ornate lobby that reflects the history of the building,” he explains.
Additionally, meeting and banquet spaces with high ceilings and the “potential for retaining existing lighting” can help hoteliers attract weddings and conventions, thus making the property appealing to multiple guest markets.
When it comes to guest rooms, things can get a bit trickier. Many structures suitable for hotel conversions lack preexisting bedrooms, and even conversions of homes can present problems in this respect.
Keller performed extensive renovations to restore his bed and breakfast to the original floorplan of the mansion, since the bedrooms and parlors had been carved up into apartments. He also had to construct private bathrooms for each bedroom since the original floorplan lacked separate bathrooms, which he says are now standard in the bed and breakfast industry.
David Tamulevich, general manager of the Regency Hotel in Portland, Maine, says his hotel took a unique approach to the problem of creating guest rooms. The property was originally an armory that housed Maine’s National Guard, and featured an auditorium and gymnasium that had to be converted into bedrooms.
Developers constructed a steel frame for the bedrooms within the space that originally housed the auditorium and gymnasium. Though the steel frame is tied to the exterior walls of the original building, it’s a self-supporting structure that essentially serves as a “building within a building.”
Creative thinking can also help with the issue of large interior spaces. Keller converted the ballroom of the Lumber Baron Mystery Mansion into a dinner theater that seats up to 100 people, thereby attracting patrons who may not be interested in an overnight stay.
The Lumber Baron Mystery Mansion before and after restoration (photos by Walter Keller)
One of the best ways to find a building online that can work for a hotel conversion, explains Tim Cannan (president of PreservationDirectory.com), is to filter search results by number of bedrooms and bathrooms. This tactic can help you locate a structure that won’t require extensive renovations.
How is the structural load distributed?
According to Fairbanks, the need for large interior spaces in a hotel can present engineering issues when it comes to historic buildings. For example, hotels often require large column-free ballrooms, but in many cases you can’t remove existing columns because they’re crucial to the building’s structural integrity.
To this end, Fairbanks suggests looking for buildings with existing column-free space, and considering constructing ballrooms and other large rooms on the second floor rather than the first. Relocating large rooms, however, can create additional problems because of the necessity for adequate escape routes.
Additionally, Fairbanks explains that the distribution of the building’s structural load must sometimes be reengineered to support the new space, which can quickly drive up renovation costs. For example, in order to renovate the ballroom of the Lumber Baron in accordance with the Secretary of the Interior’s standards, Keller had to add an iron fire escape in period style that cost roughly $30,000.
What is the overall square footage?
According to Cannan, a building suitable for a hotel conversion will easily exceed 10,000 square feet. Fairbanks adds that buildings suitable for major brands like Westin, which focus on “full-service, group meeting hotels,” must exceed 120,000 square feet.
If you’re creating a bed and breakfast, however, you can utilize smaller structures like a Queen Anne mansion (as in the case of Keller’s Lumber Baron Mystery Mansion), or even bungalows for company workers (as in the case of Robert’s Cajun Village Cottages).
Cannan notes that you can use the square footage search filter on websites that list directories of available historical properties to find a building that meets your specific needs.
Determine What Tax Incentives You Qualify For
Michael Auer is a member of the staff of the Technical Preservation Services (TPS) branch of the NPS, which oversees the federal tax incentive program for historic rehabilitation projects (Auer has written a comprehensive introduction to the program).
According to Auer, historic restoration projects can qualify for a 20 percent federal tax credit if they target structures certified as historic by the TPS, and 34 states also offer tax incentives at the state level.
One of the best ways to find out about incentives offered at the state level, Auer says, is to talk to a State Historic Preservation Officer (who also determines whether or not a request for historic certification of a building will be reviewed by the NPS). You can find a list of websites for State Historic Preservation Offices here.
To qualify as a certified historic building, a building must either have its own listing in the National Register of Historic Places or be certified by the NPS as enhancing the importance of a historic district listed in the National Register. The quickest way to find out whether your building is located in a registered historic district is to call your State Historic Preservation Office.
Bring in a Third-Party Consultant
If your building isn’t listed in the National Register or located in a historic district, you can nominate it for inclusion yourself. While some states have resources for assisting with nominations for National Register listings, Auer says most states do not. This usually means you’ll have to research the nomination process on your own, though there are consultants who specialize in this area.
Keller says he consulted a legal professional who specializes in tax credits before applying for the 20 percent federal tax credit (which he eventually received). He also relied on the Colorado State Historical Fund, which allocates state taxes to preservation projects, to finance the creation of his bed and breakfast.
Gilbert Ashoff, owner of the Vichy Springs Resort, had been renovating buildings around a hot springs for years before deciding to bring in a professor of history at Sonoma State University to research the history of the buildings.
When it was discovered that the buildings were formerly part of a resort that had hosted Ulysses S. Grant, Teddy Roosevelt, Mark Twain, Jack London and Robert Louis Stevenson, the State of California awarded the property Historical Landmark status.
In order to receive federal and state tax credits, however, research on a property needs to begin as soon as possible. “Apply as soon as you can, preferably before you start work, so we can work with you to get an approved project,” Auer advises.
Leith-Tetrault also recommends bringing in “an architect or preservation consultant and inviting the State Historic Preservation Officer to tour the structure before you spend a lot of money on design.”
Research Community Initiatives and Opportunities
Harnessing municipal initiatives that focus on neighborhood redevelopment can also help you finance your project. Keller relied on a loan that he obtained through the Denver Office of Economic Development at roughly two points below market rate to help with restoration costs when creating his bed and breakfast.
Fairbanks adds that developers who focus on adaptive reuse projects frequently work with cities on community-level revitalization initiatives that “offer subsidies or negotiated investment through city loans and grants to assist with the city’s economic objectives.”
For example, HRI is currently working with the city of Fort Worth to redevelop the Lancaster corridor of the city after an elevated section of Interstate 30 was removed, which reunited a whole historic area with downtown Forth Worth. Such municipal initiatives offer unique opportunities for developers.
As Leith-Tetrault observes, “banks and other investors tend to worry about hotels as an investment, since there’s both high reward and high potential for loss.” You can hedge your bets and appeal to investors, Fairbanks explains, by adopting “a holistic approach” to development that considers retail, housing and office space (for example, a mixed-use structure that includes luxury apartments in addition to a hotel).
Adaptive Reuse Benefits Extend Beyond Financial
Auer says the benefits offered by adaptive reuse projects often go beyond tax credits. “By using the energy and materials embodied in historic buildings, we can recapture a huge investment that the past has already made in these structures,” he explains.
Adaptive reuse is thus an attractive option for hoteliers interested in “green” development options, as converting a building requires less energy and fewer materials than creating a new structure, and can attract more environmentally conscious guests.
Getting your building listed as a historical landmark can also help put your hotel on the map—literally.
Ashoff notes that after Vichy Springs Resort was awarded State Historical Landmark status, signs were posed at intersections directing travelers to the resort and the state even went so far as to change the name of a freeway exit. As a result, numerous guests now seek out the resort each year specifically because it’s a State Historical Landmark.