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Shopping Centers Today -> November 2003
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Embassy Suites mulls opening more hotels in shopping centers
BY DEBRA HAZEL
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| Photo: © Joanne S. Lawton |
| Hotels like this one at Chevy Chase Pavilion, Washington, D.C., supply malls with more shoppers, while the malls offer the hotels stores, restaurants and recreation for their guests. |
Will hotels become the latest non-traditional mall anchor?
Embassy Suites, a Hilton Hotels brand, says it sees an opportunity to offer guests additional entertainment, dining and shopping amenities and that it may attach new units to shopping centers. It has already done so at Chevy Chase Pavilion, in metro Washington, D.C., among other properties.
In this, Embassy Suites is not alone. A 293-room Renaissance hotel is under construction at Taubman Centers’ International Plaza in Tampa, Fla.
Just as hotels reap the advantages of having shopping and dining options on their doorsteps, malls benefit too — from the tourists and weekday visitors a hotel draws.
“It brings people to the mall for a different reason,” said David M. Ware, vice president of residual development at Taubman Centers. “When a substantial number of hotels are part of your location, it provides a great opportunity.”
These centers may be pioneering a new kind of anchor, one that could, in certain circumstances, make up for the lack of viable department store and other retail anchors and provide new cross-shopping.
Setting a hotel near a regional mall is hardly new. Hotels have been a part of such mixed-use projects as the Galleria Dallas (see story) and Atlanta’s Cobb Galleria for decades. But rarely has a hotel been truly attached to a regional mall; West Edmonton (Alberta) Mall and Desert Passage at Aladdin, Las Vegas, are two examples.
Embassy Suites’ first opening near a mall was at Central Coast Mall (now Central Coast Plaza Mall), San Luis Obispo, Calif., in 1988, according to John Lee, an Embassy vice president of brand management in Los Angeles. The center, the area’s first enclosed mall, is less than two miles from downtown San Luis Obispo, which was struggling at the time. Leasing suffered as a result, says Lee.
“They had a tough time getting two major department stores,” Lee said. “Downtown was being vacated for the suburbs.”
Joining Gottschalks, Embassy functioned as one of the anchors.
The Chevy Chase Pavilion Embassy Suites opened in 1990. The hotel shares levels two through nine of the nine-story mixed-use complex with 197,000 square feet of offices, while 143,000 square feet of retail space takes up three levels (from below ground to the second floor).
Embassy has since moved into other shopping center sites, including Circle Centre, Indianapolis, and Biltmore Fashion Park, Phoenix, which Taubman recently announced it will sell to The Macerich Co. In all, today Embassy has hotels in six malls.
The company looks at these opportunities cautiously, however. “It wasn’t a purposeful strategy [then],” said Lee. “And today it is not a purposeful strategy.”
That may be, but it’s a strategy that seems to work nonetheless. Embassy’s clientele and its standard design — which features large atria not unlike a mall’s center court — are very compatible with regional malls, says Lee. A mall offers Embassy’s weekday guests (mostly business travelers) a convenient place to buy ties, hosiery and the like, and dinner and entertainment when work is done. Weekend guests (mainly families) seek the convenience of mall shopping and entertainment.
“It becomes a tremendous venue for people who live away from core cities to come for a weekend,” said Ware.
He estimates that the presence of a mall increases hotel occupancy by as much as 10 percent. How the hotel benefits the mall has not been quantified, he says, but notes that “almost certainly, multinight hotel customers will use the mall facility, either for dining or to pick up a special gift they rarely have time to [get] at home.”
If a 300-room hotel is 80 percent occupied, he adds, the mall gets an additional 250 patrons or so for impulse purchases or who seek easy variety in dining.
About 30 percent of the Loews Denver Hotel’s guests shop at Taubman’s Cherry Creek mall during their stay, says Ellen Collins, the hotel’s director of sales and marketing. The Loews is located one mile from the center and runs a regular shuttle.
“Every sales pitch we make includes Cherry Creek,” she said. “It’s our No. 1 tourist attraction. And because we’re not downtown, it’s our No. 1 advantage.”
The suburban Hilton Short Hills (N.J.) sends at least half its guests over to Taubman’s Mall at Short Hills, directly across the street, estimates Edie Turna, the hotel’s director of sales and marketing. The two facilities frequently coordinate their promotions. Often, guests will choose the hotel because of its proximity to the center. Even so, the hotel provides complimentary transportation to the center.
“Guests will come, shop, have a fine dining experience and go to the spa,” Turna said. “We’re almost like an urban resort.”
Despite the synergy, adding a hotel to a mall raises challenges on several fronts, including financing, architecture and security. The hotel and retail sectors don’t generally enjoy the favor of investors at the same time. And when the time comes to negotiate the two aspects of these projects, the deals are done separately.
The Chevy Chase Pavilion complex is owned by the Pennsylvania State Employees’ Retirement System and managed by Lowe Enterprises. The hotel and the retail tenants pay rent separately. (The Hilton-brand hotels all have different owners.)
“Even though we are sister companies, we pay rent [plus typical common-area maintenance charges],” said Jeff Brainard, director of sales and marketing at the Chevy Chase Pavilion Embassy hotel. Percentage rents are based on total revenues.
The Renaissance has an 80-year lease with Taubman, which in turn leases International Plaza’s land from the Tampa Airport. The hotel will pay rent and CAM, though not determined using the same formula as for department stores. Hotels do not receive some of the subsidies that department stores get. Because hotels do not have “sales” per se, a base rent and percentage based on the hotel’s operating budget was determined.
“We looked at our operating budgets and theirs and came up with a number that escalates,” Ware said.
To avoid confusion, designers must be careful not to have the front doors of the mall and the hotel too close together. And developers need entitlement rights to build multiple stories in order to accommodate a hotel.
The nine-story Renaissance at International Plaza will connect to Bay Street, the hybrid mall’s streetscape portion, by means of a pedestrian crossing. This combination works particularly well because the hybrid is home to restaurants and clubs that stay open well after mall hours, Ware says.
Security and parking problems can be handled by hiring additional staff. In fact, Lee says that the multitude of daily visitors makes malls more secure during shopping center hours than the typical Embassy.
International Plaza, too, plans to carefully monitor its parking lots.
“With a full-service hotel, they’re as concerned about security as we are,” Ware said. “The hotel will have its own security, but the two will be coordinated.”
At Chevy Chase Pavilion, the 198-room hotel’s front desk is on the top retail level, with guest rooms starting one level above the shopping. Both the mall and the hotel have 24-hour security, partly because of the complex’s location above the Friendship Heights metro train station. Only one elevator permits access from the mall to the hotel.
“With 24-hour security, we don’t have an issue,” Brainard said.
Not surprisingly, merging mall with hotel is much easier with a new center than with an existing complex, and to date Embassy has gone only into new malls. Embassy generally requires a pad of more than an acre to accommodate an entry footprint of more than 100,000 square feet. Retrofitting a department store into a hotel would most likely mean complete and costly demolition of a pad and perhaps of adjacent space, a cost Lee says would have to be absorbed by the developer.
Upscale hotels are wary about centers’ retaining their upmarket appeal. Recently, Chevy Chase Pavilion went through a repositioning, something that could have been problematic for the smart hotel if the mall had chosen to go midmarket. Often, this matter isn’t even addressed in the lease.
“We had a lot of discussions about that,” Brainard said. Given the affluent market, “we weren’t concerned with them trying to make it a discount. But if the mall had gone in another direction, there wasn’t much Embassy Suites could have done about it anyway — a lease is a lease. … There’s no out, so you work with them as well as you can.”
Not all hotel-mall connections need to be upscale, however. Ware notes that Taubman’s first enclosed mall, Woodland Mall, Grand Rapids, Mich., had a Residence Inn on an outlot, and he is working on a hotel deal for Dolphin Mall, Taubman’s value megamall near Miami.
If leases don’t require a mall to stay posh, the uses at least are agreed upon. The Chevy Chase Pavilion hotel does not have a bar or full-service restaurant, unlike most Embassy Suites, says Brainard. It does, however, serve its standard full breakfast to guests and to the paying public. The manager’s nightly two-hour cocktail reception, a traditional Embassy amenity that is free to hotel guests, will also serve paying shoppers.
“That’s directly attributable to the mall underneath,” Brainard said. “We chose not to compete.”
Malls do offer hotels the opportunity to create some engaging partnerships with the other tenants. The Chevy Chase Pavilion hotel is working with a Georgette Klinger spa, a SteinMart and the Cheesecake Factory to offer discounts and other specials.
Embassy Suites, which has 174 hotels countrywide, plans to open between five and eight new ones yearly. The chain hopes to reach 300 units in five to seven years, but doesn’t know how many of those will be attached to shopping centers.
“Our development team out in the field is looking at every opportunity,” Lee said.
Yet hotels may increasingly become a factor in mall configuration, observers say, giving to shoppers a relatively new sort of place to eat, rest or visit a spa, and to hotel guests entertainment, shopping and dining options beyond most hostelry’s dreams.
“I don’t see any negatives of being in a shopping center, as long as you have a good relationship,” said Brainard. “It’s absolutely synergistic.”
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