Re-imagining Energy Management to Drive Hotel Asset Value

September 23, 2016

Hotel Entrance

Introduction

The quest for increasing “asset value” is never-ending for today’s hotel owners, management companies and developers, but the goal is the same—to create and sustain a property (or portfolio) that is operationally sound and fiscally strong throughout its life, particularly at the time of sale.

 

While green efforts are not new to the hospitality industry, hoteliers are increasingly tapping the wave of smart energy management solutions in the market because of the substantial savings they yield and their correlation to boosted asset value. A hotel’s energy demands don’t waiver—energy is constantly consumed at a hotel regardless of property size, any brand affiliation, geographic market or time of year. When the right energy-saving measures are implemented, utility costs are dramatically reduced, more money goes to the bottom line, and hoteliers are poised to realize the rewards of a financially healthy green property. Making a property more sellable in the future starts with outfitting it for success at the onset, or through green renovations and retrofits during ownership.

 

Enhance Value by ‘Stacking Nickels’
Adding wealth to a hotel’s bottom line is essential, and even small sustainable actions deliver a significant return on investment in both the short- and long-term.  Matt McClelland, Executive Vice President of Operations and Development for Concord Hospitality, likens the idea to “stacking nickels.”

 

Whether it’s installing LED bulbs in hallways (where the energy savings return Concord experienced has been quick—in approximately six months) or utilizing LED adapters for retrofits (where the company’s savings are seen in under 16 months), McClelland believes that utility savings afford an instant shot of financial value. “We look at every place we can realize energy savings, whether we are buying, converting or building a property,” he explained. “There is a tangible pay-off to ‘stacking nickels’, and you will reap the rewards when selling the asset.”

 

Sometimes those nickel savings are substantial. The implementation of LED occupancy sensors in the hallways of one of Concord’s hotels in the Greater Toronto Area has yielded a savings of $12,000–$15,000 a year. Looking beyond the interior, the outside of a hotel offers extensive LED opportunities as well—such as exterior lighting on buildings and in parking lots, plus landscape illumination. Even changing exterior signage from neon to LED lighting has emerged as a game-changer in the industry because they don’t burn out or lose color.

 

Hotels are starting to transact at higher selling prices as a result of strategic sustainable solutions implemented during ownership. “When viewed from a site-specific perspective, the reduced energy costs [associated with LED/sustainability efforts] would certainly drive net operating income higher and pricing should follow,” said Steve Kirby, Principal, Mumford Company. “In theory, those items likely would also apply on a macro basis.”

 

Lead With LEED
Within the Concord portfolio of 90 hotels, approximately 30 percent are LEED certified. “If we’re developing from the ground up, we build a hotel to LEED specifications because the financial benefits will certainly come back to you,” noted McClelland. Concord opens between 18–25 new hotels a year, each exhibiting its own identity and a portfolio of energy-management solutions customized to the product, with the goal of attaining coveted LEED designation.

 

A recent McGraw Hill Construction study supports Concord’s emphasis on LEED—green building in the hospitality segment has increased 50percent from 2011–2013 and today represents 25 percent of all new construction in the sector.

 

LEED bolsters the wallet, too. According to McClelland, their LEED-certified Courtyard by Marriott hotel in Pittsburgh realized a 25–26 percent utility savings (electric and water), approximately $50,000 per year, as compared to a similar non-LEED property in the same market. This translates into incredible asset value on the bottom line, giving the property a distinct advantage over the competition when potential buyers are examining operations and performance. The added bonus—financial savings from sustainable efforts can be applied to strengthening other aspects of a hotel.

 

Pricing is Paving the Way
Ensuring a return on investment is essential for the hospitality industry’s master budgeters, and while being green generally requires spending some green, the end result is often a higher performing, higher valued property. Product innovations and improved pricing have propelled increased use of LED lighting in renovations, retrofitting and new construction, so sustainability and efficiency can be delivered without sacrificing quality.

 

“LED placement is becoming a larger part of what we do going forward because costs have come down, LED bulb designs have changed for the better, and the light quality has improved,” said Craig Amos, Executive Vice President of Capital Investments, Apple Hospitality REIT, owner of 230 limited service hotels in the Marriott and Hilton families. “We’re more comfortable rolling out these efforts on a larger scale.”

 

Apple Hospitality’s proactive LED conversions are based largely on rebates, and although rebates vary greatly depending on the market, they can be anywhere from 20–100%. The return makes sense for the company, noted Amos, because attractive rebates bring down the cost of LED lower than CFL bulbs and with the bonus of reduced energy consumption.

 

According to Amos, Apple Hospitality has been focused on LED conversion projects for approximately 25 percent of its portfolio for the past three years. The project scope varies from just the lobby to the entre hotel, but the first target is usually the public spaces and corridors—the 24/7 areas. Another emphasis is changing to LED bulbs in hard to reach places such as backlit bathroom mirrors. Less frequent changes makes them low-maintenance, which is a huge labor savings and a plus for operations.

 

Financial Speed of Satisfaction
A return on investment in green practices is crucial, but the speed of that return plays a vital role in driving the implementation of such practices across a portfolio or individual properties. According to Mike Shutts, Vice President, Corporate Engineering, for Destination Hotels, the company’s return among the 75 percent of properties that have completed LED upgrades is typically in less than a year, a major bonus for stakeholders.

 

Shutts cites impressive figures. The Lansdowne Resort & Spa in Leesburg, VA allocated $60,000 for LED upgrades in their guest rooms, corridors, ballrooms and public spaces, and the Embassy Suites at the Chevy Chase Pavilion in Chevy Chase, MD invested $80,000 in LED property-wide—both with returns within less than one year. Pay-back of an investment of $110,000 at the Embassy Row Hotel in Washington, D.C. was achieved in 14 months, slightly longer because the work was done during a renovation.

 

Once a financial outlay has been allocated, the best way to realize savings is a quick response, noted Shutts, because that can boost smart operational decisions. “New technology provides real-time data so we can tap controls for better management and an in-the-moment reaction to energy consumption.”

 

With heightened efficiency comes operational savings, guest comfort and a stronger value proposition.  “Every time we make an improvement, the next owner won’t have to make capital investments in that area. Sustainable endeavors add tremendous value and make assets more attractive for the future,” explained Shutts.

 

Greening Portfolios & Watching Costs
The future impact of LED lighting remains “bright” and moves beyond lighting spend to layout conceptualization—for example, the potential of dimmable LED fixtures, which McClelland said are now more affordable. “There’s been such an emphasis on furniture in designating separate spaces in a hotel, and now these cost-effective dimmable LED fixtures can help accentuate distinct zones.” It’s being both green-minded and design-savvy.

 

Beyond LED, Apple Hospitality has implemented in-room energy management systems in their limited service hotels (motion sensor-driven devices kick-on at pre-set temperatures), and water boiler heat monitoring systems that can be dialed-back during off-peak consumption times, among other efforts to green their portfolio and keep cost-control top of mind. According to Amos, since guests can already use their phones to enter accommodations, in-room energy management systems are close to connecting with Bluetooth® entry – providing guests with enhanced control over other aspects of their rooms, which can save money and enrich their in-room experience.

 

“Sustainability is an on-going process fueled by technology that elevates the guest experience. We leverage our buying power to obtain the best prices so we can deliver unrivaled satisfaction to our customers without compromise,” said Amos.

 

“We look at hotel properties where green initiatives turn into best practices,” he continued. “We focus here because those best practices ultimately drive the bottom line, extend the life of a property and create asset value, whether for renovations or new builds.”

 

Green Culture Moves the Profit Needle
Thinking green is embedded in the Concord philosophy, and the “doing good” mindset can strengthen employees’ resolve to deliver an unparalleled guest experience. 

 

“Sustainability programs need to be cultural and about more than just lighting spend numbers on paper,” shared Shutts. Being green has evolved from towel-laundering programs and recycling to a comprehensive platform of initiatives that has the capacity to enrich staff members’ experience as well as a hotel’s bottom line.

 

McClelland concurs. “We believe in sustainability, and we’re sensitive to the communities we’re building in. Our customers ask our sales team about waste management and our carbon footprint because sustainable initiatives are becoming more important to consumers of today and tomorrow.”

 

“We’re being responsible in how we sell to the future,” he continued. “It’s crucial to be smart where you can be smart in this competitive industry, and energy saving solutions implemented now, no matter how small they may seem, will make an important difference in the future and undeniably boost asset value.”

 

Venturing Beyond the “Bulb”
LED continues to grow in popularity—LED commercial usage is anticipated to grow from 28 percent today to 95 percent by 2025—but the adoption of other energy-management solutions is also taking hold in the hospitality market. Whereas switching to more efficient lighting helps reduce demand for energy, some hospitality professionals are taking a step further, imagining and executing upon a more holistic, sustainable approach to energy management.

 

Companies like Current, powered by GE, are working with hotel owners and operators to allow production of on-site energy (for instance, via solar panels or combined heat and power systems), helping hoteliers offset the demand they place on local power grids—and the demand charges that make up large percentages of their bills. Others are looking to address these charges by shifting energy demand away from peak periods, whether by storing energy in large on-site batteries that can be tapped as needed, or using load-management software to strategically utilize energy-consuming resources to promote savings. Still others are finding ways to monetize energy, installing electric vehicle chargers that can directly generate revenue or attract consumers looking for hotels at which they can charge their increasingly long-distance electric cars.  

 

Energy management is about more than products’ energy efficiency, and that is ultimately why hoteliers are working to find solutions customized to their energy needs—and those of the properties buyers that will come after them.

 

Conclusion
As soon as a hotel is acquired, the new owners are typically eyeing an exit strategy to move the profitability needle forward. Potential buyers examine a property’s location, brand affiliation, RevPAR and other factors, including a growing emphasis on sustainable elements because of their positive impact on operational efficiency and monetary savings. Creating hospitality wealth starts with fostering hotel health, and implementing a strong green program delivers proven financial results that make an asset increasingly attractive to buyers.

 

Re-imagining energy management has evolved tremendously. Beyond the introduction of more sophisticated green practices, energy management solutions have emerged as an asset-strengthening component that creates a higher level of operational efficiency and saves money on a hotel’s bottom line, all without an adverse effect on delivery of the guest experience. 

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