Strategic Hotels & Resorts Inc., a REIT with stakes in luxury properties, has a goal of getting as much as 50 percent of revenue from sources other than rooms at each of its hotels, Chief Executive Officer Laurence Geller said.
The Chicago-based company has gone so far as to flood outdoor lawns and convert them into ice rinks at a couple of its hotels, allowing it to charge for skate rentals and lure more diners to its food venues. The REIT, whose assets include Hotel del Coronado in San Diego, also leases walls inside and outside its hotels for advertising and rents unused space on rooftops to telecommunications companies for antennas and other equipment.
"We look at our real estate as a mixed-use development, where rooms have become merely an anchor tenant, like in shopping malls," Geller said in a telephone interview. "It's been increasing across the industry as people realize they need higher returns on their hotels because hotels are expensive to run and not as profitable as they used to be."
Of Strategic's 20 hotels, five are back to pre-recession profitability levels, he said.
"Today you have to justify why you have a garden instead of something else that could make money," Geller said.
While additional revenue streams tend to boost the bottom line, owners need to be careful to not disrupt the look of a hotel, according to Bruce Baltin, a Los Angeles-based senior vice president at PKF Consulting USA, which advises hotel owners and investors on management, acquisitions and dispositions.
"What you don't want to do is put a Burger King into a luxury hotel," he said. "So coherency is probably the main challenge. You don't want your hotel to feel like a giant food court, but still make sure it has brand recognition."