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Unorthodox Hotel Space Repurposing to Create New Profit Centers

Stephen Darling

As a veteran hospitality consultant working out of Vancouver, British Columbia, I’m privy to some very interesting cases and projects throughout the Northwest that require highly creative solutions. Here is one instance that ended up a triumphant success because it creates an entirely new revenue stream for the property – one that would be foreign to most hoteliers.

Challenge
One of my client hotels in Kamloops, BC had a 5,000 square foot street-facing, corner restaurant that was ‘past its prime’ and losing $500k per year. Initial triage meant closing the restaurant and consolidating meal service into the lobby lounge –after giving it a facelift. That was the easy part. While the primary goal was to cut the losses and lease out the now derelict space, after four years, we still hadn’t yet found a suitor for the lease.

It was time for ‘Plan B’. We created a wellness centre concept that included a fresh brand with central reception/washrooms and entry. The intent here was to lease the space out to four or five entrepreneurs, but the numbers didn’t add up and that concept was quickly shelved.

Solution
Time for ‘Plan C’! One of our owners had the idea of a mediation and arbitration center. While it first sounded like a stretch, we retained a university graduate who had just completed his master’s degree in tourism research. His three-month assignment involved assessing and documenting regional demand, potential viability of such a business, potential tenants, its scope, details required in such a specialized facility and a handsome incentive payable for leased space.

As we were researching the concept, we lucked out. British Columbia’s Attorney General announced a strong commitment to funding and growing mediation and arbitration in order to reduce burden on the courts. It was now written into law for certain types of civil cases whereby some form of mediation or arbitration was mandatory before the disputes could even be presented to the courts. Then more unexpected news: Family Mediation Services – a mere one block away – needed additional meeting facilities due to a new law requiring an independent opinion on all separations or divorces involving minor children.

The overarching objective for us was to attract wholly new business to the hotel and to the city – especially in the fall, winter and spring seasons – rather than steal business from the competition which would result in a race to the bottom of the rate ladder. Ultimately, the goal was to create incremental rooms revenue – the core profit engine of most hotels.

At the outset of this ‘Plan C’, we identified 32+ public and quasi-public agencies plus other organizations in the province that would use such a facility. At the time, there were only three such facilities in the province located in the major cities of Vancouver and Victoria. Further, those facilities didn’t offer the scope of custom-planned space and services that we were capable of providing through the adjacent hotel.

Our researcher looked at global best practices for mediation centers to identify the essential features plus competitive attributes required so that we could become the market leader that would draw business to the facility. Given the emotional stress inherent to mediations and arbitrations, we learned that participants living outside big cities would feel more relaxed if they didn’t have to drive into an urban environment. Kamloops, as a city of approximately 100,000, was the ideal size. Moreover, as it is situated in the mountainous interior of the province, Kamloops was the perfect ‘neutral territory’. Adding to this was that smaller towns meant lower costs for hotel accommodations – an attractive offer for consumers that we promoted heavily.

Actions
To get the ball rolling, we found a tenant whose primary business was court reporting. Part of the space was leased out to them which created a nucleus and momentum for further services to view us in a legitimate light as well as a hard to duplicate attribute for the property. From there, the concept of Centrepoint was born (www.centrepointbc.ca).

Refurbishing a space for mediation and arbitration comes with specific stipulations, though. Critical items that had to be included are multiple entries/exits, natural daylight and variable lighting, the highest level of acoustical integrity, high-definition video conferencing, individual climate controls, ease of hot and cold beverage access, and ‘on-demand’ foodservice. Through local recruitment, we were able to find a manager with a BCOM degree, private banking background and experience in project marketing – all perfectly suited to the facility’s specialized needs.

Centrepoint thus became a concept that was created as a freestanding business which, once refined and proven, could be transported to other locations. By the fifth month of operation, the business was breaking even and generating synergistic business for the adjacent hotel. While initial room nights were trending at 10-25 nights per month, the property’s function space previously used for such events was now being used for larger events, with a higher profit margin and generation of yet more new rooms business which in turn lead to incidental spending and flow-through.

Many small details, such as how to keep lunches fresh, soups hot and beverages flowing without interrupting the meetings, were crucial to the formula for this success. Unlike a hotel, the absence of visible service was also required. Specialized serving wares, multiple self-serve beverage stations, lumbar-support chairs, secure high speed WiFi, panic buttons, password-controlled wireless printers, acoustical baffles in the ventilation ducts and covert security cameras all composed these details that led to the facility’s success.

The hardest challenge was explaining to lawyers, mediators and related professionals what was being created and why it would lead to a superior experience that would facilitate faster and less stressful resolutions. During the opening launch and ‘product awareness’ phase, a partnership with the local Thompson Rivers University’s law faculty brought in some healthy and immediate returns. This relationship worked to bolster recognition as well as provide referrals via faculty members and the affiliation. It acted much like a third-party stamp of approval so that lawyers and mediators would see us as a legitimate option.

In this case, an ‘if you build it, they will come’ motto actually worked! It turns out we hit the jackpot as there was a vastly underserved market for mediation and arbitration centers in British Columbia, which are on neutral ground and supported by professional hospitality services.

Another stone that was ‘turned over’ twice revealed a distinct need for serviced offices. While we had thought that most road warriors nowadays simply work on their laptops in hotel rooms, with three significant infrastructure projects on the drawing boards we recognized a growing demand for such spaces. As a result of these findings, two 225-square-foot offices were built. Centrepoint also sweetened the deal with introductory offers that included pool and fitness access plus secure underground parking.

All told, this auxiliary effort resulted in impressive bookings from a broad spectrum of non-traditional clientele, including ‘work from home’ technical consultants in need of meeting spaces. Advertising for these serviced offices opened the hotel’s doors to new, previously unreached demographics. Working in tandem with the tactics to build awareness amongst lawyers and mediators, targeting consultants helped ‘fill the gaps’ at Centrepoint so that it was continually in the black.

Results
Into its sixth month of operation, the feedback from the legal and related communities has been outstanding. One lawyer from the Maritimes was overheard saying that he felt like he was meeting in a sleek Madison Avenue office rather than in the mountains on the West Coast. A leading mediator mentioned that the facilities were the most conducive he has ever used and a catalyst to achieving an acceptable outcome for the parties involved. The differentiating factor here was adding professional hospitality to high-stress meetings as a means to facilitate resolutions and keep as much out of the court system as possible.

There has also been a marked ‘ripple effect’ of incidental spending, resulting in a significant uptick for other revenue streams like the restaurant and lounge as well as underground parking. Basically, Centrepoint has created more general activity throughout the hotel and its patrons are feeding into all other aspects of the property. It’s now a true center of commerce and not just a place for heads in beds. Even if the mediation and arbitration participants are local, the hotel’s other business streams still benefit in more ways than one.

The initial aim for this venture was to make find a use for an empty space. For this, the property passed in flying colors! The hotel now benefits by having a stable, established tenant in addition to one that created a symbiotic relationship with the year-round occupancy bolstered by arbitration parties and the abovementioned ‘ripple effect’.

Everyone wins! So the next time one of your ancillary revenue streams is faltering, you don’t always have to turn to F&B or spa for the answer. My hope is that you will learn from this unorthodox example and apply it to your own property’s unique situation and circumstances. Try a more create approach to further differentiate your property and, hopefully, maximize profits.

Article by Stephen Darling, originally published in Hotel Executive on March 21, 2016.


About the Author

sdarling

Stephen Darling is principal of Stephen Darling Hospitality Consulting Inc. and a Vancouver–based partner of Cayuga Hospitality Consultants, working with national and international clients on hotel development and operations. Stephen has consulted on several North American mixed-use developments in the luxury sector and was a senior member of the teams that brought Mandarin Oriental and Shangri-La to North America. He is also certified as an independent board director and a member of the Cornell Hotel Society. Mr. Darling can be contacted at stephen.darling@shaw.ca Please visit www.stephendarling.com for more information.