Development Magazine Summer 2019

Development - Ownership

The Hotel Sector Can Profitably Embrace Sustainable Development

The Bardessono Hotel & Spa in Yountville, California, has a number of environmentally sound features, including rooftop solar panels and low-flow water fixtures. Bardessono Hotel & Spa

Green practices aren’t just for eco-hotels; all types of lodgings can benefit, too.

The concept of sustainability, which encompasses economic, social and environmental prosperity, has rapidly gained ground in real estate development during the past decade. The hotel sector, however, has been slow to adopt sustainable development compared to other property types.

One reason is the perception that sustainability incurs prohibitive costs. There are also challenges specific to hotels, including constant operational demands, more frequent renovation needs from wear and tear and shifting market trends, and pressure to attract and retain guests who, at least in the short run, may appear to have little to gain from sustainability measures.

Yet for the developers and operators of hotels, paying attention to sustainable development in today’s landscape may be a prescient move. This is an era of rising energy costs, water insecurity, consumer and regulatory trends toward eco-friendly approaches, and erratic and unpredictable weather patterns. In this context, sustainable development techniques can be an important tool for mitigating the challenges facing hotel developers and operators.

The Cost Side of the Equation

In order to meet their mission to satisfy guests’ demands 24/7, hotels require a lot of resources, including energy and water. The U.S. Green Building Council (USGBC) estimates the global annual energy use of hotels at around $4 billion. A 2012 dataset from the Environmental Protection Agency (EPA) showed that hotels are the second-most water-intensive building type in the U.S., surpassed only by senior care facilities. According to Energy Star, hotels in the U.S. spend an average of $2,196 on energy per available room per year. Energy makes up 60 percent of a hotel’s utility cost, while water and wastewater services, on average, make up 24 percent.

There are numerous approaches to sustainability that can help hotels improve operational efficiency and reduce costs.

The price of water in the state of California has been increasing at six times the inflation rate, with the price of electricity rising at a similarly alarming pace. Napa Valley’s Bardessono Hotel & Spa has been taking advantage of available environmental resources on site since opening its doors in 2009. It generates 50 percent of its own electricity with rooftop solar panels and uses geothermal energy for heating, cooling and providing hot water to its 62 guest rooms. The property also has low-flow fixtures and recycles greywater for non-potable use, saving 3 million gallons of water annually.

The estimated 5- to 10-percent premium included in the $46 million construction cost due to the green features may seem excessive at first, but not when the longer-term benefits are considered. The hotel, with its “eco-luxury” branding, charges $800 to $1,500 a night, a substantially higher rate compared to neighboring luxury properties.

The Fairmont Waterfront in Vancouver, Canada, has been saving enough energy to power approximately 7 average-sized Canadian homes a year since installing a heat-recovery system. It preheats incoming municipal water with the condensate captured from existing domestic hot water tanks. The hotel has reduced its annual water usage by 1.7 million gallons since installing low-flow toilet fixtures in 2014, a significant conservation of resources — and money.

In addition to these upgrades, the property implemented efficient cleaning practices that save 175,000 gallons of water annually. The hotel reports an annual operational savings of $200,000 from implementing the various sustainability features and policies.

InterContinental San Francisco strategically leveraged energy-efficiency retrofits with a regional utility’s rebate programs to yield significant cost savings. In 2009, the hotel replaced all the metal halide lamps in its garage with compact florescent lamps (CFLs). With the rebate program covering $32,000 of the $45,000 capital cost and the CFLs reducing the hotel’s annual energy cost by $35,000, the project paid for itself in five months. In all, the hotel saved nearly $200,000 in capital cost on sustainability retrofits with federal and regional sustainability rebate programs while lowering its annual energy bill by $150,000.

The Revenue Side of the Equation

Beyond cost savings, adopting sustainability measures has been shown to increase the financial performance of hotels and boost their brand appeal to guests.

A 2014 study by Cornell University suggests a positive correlation between sustainable development and revenue for hotels, as the average daily rate per room increased by $20 in two years after a hotel gained its LEED (Leadership in Energy and Environmental Design) certification. A 2011 study conducted by Harvard University found that high-sustainability companies, which adopted a substantial number of environmental and social policies, significantly outperformed their low-sustainability counterparts over the long term (18 years) both in accounting performance and the stock market. The study covered a sample of companies from 29 sectors, including travel and leisure.

It is critical for hotels to be in tune with customer demands and market trends to secure customer loyalty and longevity. One increasing customer demand is sustainability. According to Nielson Global Study of Corporate Social Responsibility and Sustainability, 66 percent of its 30,000 respondents said that they are willing to pay more for products and services from companies committed to positive social and environmental impact. A survey conducted by Hilton reflects this trend in the hotel sector. One-third of almost 72,000 respondents said they would seek out a hotel’s commitment on environmental and social sustainability before booking their accommodation.

These consumers look for shared values with the businesses they patronize. According to a study published in Harvard Business Review, 64 percent of consumers said their loyalty to a brand depends on this alignment in values. This is especially significant in light of Deloitte’s 2016 finding that 1 in 4 travelers allocate more than 75 percent of their lodging budget to their preferred hotel brands.

Time to Act?

The window of opportunity may be narrowing for reaping the same degree of development incentives and branding benefits of pursuing sustainable development as the earlier adopters. Currently, many U.S. cities, including Chicago, San Francisco and Washington, D.C., offer financial and other incentives to promote sustainable development.

That said, a shift from incentive-based policies to regulations may be in motion. In late 2018, Washington, D.C., signed into law the Clean Energy Omnibus Amendment Act, which mandates stricter energy performance for all new and existing buildings 50,000 square feet and larger. By 2023 it will encompass buildings that are 25,000 square feet and up, then, by 2026, buildings 10,000 square feet or larger. This is a major step toward mainstreaming sustainable development across all property types.

When thinking about the timing and benefits of sustainable development strategies, resilience is a related issue that must be considered. As extreme weather events, including floods and storms, become more frequent, they are starting to influence regulations. Houston, for example, is considering raising the 100-year storm estimate for flood mitigation following Hurricane Harvey.

The environmental conditions surrounding a hotel can have major implications on its bottom line. Some sustainable development strategies, especially related to energy and water management, can be particularly helpful for building operational capacity and independence for hotels in cases of disasters or outages.

Finally, it is optimal to think of sustainability early, ideally at the pre-development planning stage. Some design changes cannot be reversed, and there are economies of scale to addressing multiple problems with one solution at the outset. That said, existing properties have incorporated sustainable development strategies with positive results, as demonstrated by several of the retrofit examples above.

Sustainable development in the hotel sector is not just about luxury hotels with rooftop gardens or an island resort with solar panels. It includes a vast range of solutions appropriate for various types of properties, from budget to luxury, small to large, urban to rural. Some solutions, such as replacing light bulbs, are simple and applicable to everyone. Other solutions require more planning and imagination.

At its best, sustainable development uses a holistic approach to find solutions that address multiple challenges at once. Regardless of whether sustainability is a part of their brand, hotel developers and operators can use it to multiple ends, including enhancing their bottom lines and improving guest experiences.

 

Hyon K. Rah, M. Arch, M.Sc., LEED AP, ENV SP, is principal of RAH Solutions, a Washington, D.C.-based sustainability and resilience consultancy, and an adjunct professor at the University of the District of Columbia.

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