WATCH THE DON SHELBY INTERVIEW OF HOSPITALITY CONSULTANT, LOWELL LANKFORD.
A FAILED HOTEL IN THIS PRIME LOCATION WOULD BE DEVASTATING FOR EXCELSIOR.
Who doesn’t love the idea of a hotel coming to Excelsior?
The real measure of success will be if this hotel is successful 5, 10 and 20 years down the road. But according to Lowell Lankford’s expert analysis, it won’t be.
If this hotel fails, our community will be left with a large, out-of-scale building in a prime location. It will be empty or have to be converted to another use.
THIS PROJECT IS ON THE VERGE OF BEING APPROVED WITHOUT ADEQUATE INFORMATION FROM THE DEVELOPER. COMMUNITY INPUT IS IMPORTANT.
We hope the Don Shelby interview has created or confirmed concern about the hotel approval process. It is currently being reviewed by the Heritage Preservation Commission (HPC). The HPC denied the request two years ago but is re-reviewing the application to determine if its original finding-of-facts to support the denial still apply. The request will then go before the Planning Commission. After that, it will go to the City Council for its review.
The City Council has required the Developer provide an updated Market Study as part of the Planned Unit Development (PUD) process. We showed Lowell Lankford, a 30 year veteran of the hotel development and operation industry, the information provided to the City. He summarized his observations in the Shelby interview. His analysis summary is below.
LANKFORD FEASIBILITY ANALYSIS SUMMARY
The Developer represents, on page 8 of its appraisal, that it will have a “total net income” of $859,200. That number is not the same as “profit”. That number does not consider debt service. Based on realistic room rates, occupancy, food and beverage revenue, real estate taxes and other expenses, Mr. Lankford believes the net operating income would more likely be $165,436. Mr. Lankford factors in a 50% loan at 5% resulting in a $420,000 expense per year. You then subtract debt service expense to see what is left. Therefore, instead of a profit of any sort, there would be a loss of $254,564 per year.
According to Mr. Lankford, for a bank to provide financing, the average daily rate (ADR) would have to be $330/night during the summer peak season–over double what the developer says it will charge. The paradox is that as rates go to such a high level, there will be market resistance and occupancy will fall. Therefore, getting revenue to a point that it will support bank financing is very unlikely.
It is appropriate to question whose numbers are correct when discrepancies between the Developer’s report and Mr. Lankford’s feasibility analysis are so significant. When considering this question, remember Mr. Lankford has been in this industry doing analyses like this for over 30 years. The developer, on the other hand, is a first time hotel owner with no experience owning or running a hotel. Furthermore, the Developer has not engaged the services of a hospitality consultant, rather only an appraiser who has prepared an appraisal which the Developer claims satisfies the City’s requirement.
This project has numerous design issues which Mr. Lankford has identified as being not conducive to a successful hotel.
In addition, the current proposal is virtually the same as the proposal which was rejected by the HPC in 2010. The effect on surrounding buildings has not changed. The massing, volume, height and scale of the building has not changed. The materials, details and building elements have not changed. None of the elements of the design which resulted in the previous denial have changed. The HPC, therefore, has no basis for reversing itself and approving a design which it had previously rejected.
Yes, a hotel in Excelsior is an exciting idea. However, all evidence from the Lankford analysis indicates this hotel cannot be financially successful. While it is a romantic notion to have a hotel on the shores of Lake Minnetonka, no professional hotel developer in over one hundred years has deemed it feasible.
We look forward to a hotel proposal which can prove history wrong and be successful. To that end, the City Council must consider all proposals in the context of financial feasibility or future Councils will be faced with the challenge of fixing what did not work.
The industry standard question for boutique hotels is not, “will it fail” but “when will it fail”? Therefore, consideration of this proposal must include what alternative re-use potential there is when the hotel fails.
Remember, it was Neil Weber, the architect for the project who stated on September 27, 2007, at the initial Planning Commission workshop, that if the hotel were to fail, the structural bay design is such that the building can easily be converted to condominiums.
The site itself has wonderful potential as a “once in a lifetime” opportunity to establish the new hub of Excelsior. If the Developer is going to ask for special favors to be granted through the PUD, it is the City Council’s and its residents’ obligation to insist that project be designed for the greatest chance of success. What is built must endure the test of time and be used for generations to come. We can’t make a “one hundred year mistake”.
Sign the online petition which says: Due to the lack of adequate feasibility information provided to-date with regard to the important Excelsior Hotel project, we respectfully call on the City to consider Mr. Lankford’s analysis or engage the services of its own hotel expert to evaluate the economic feasibility of the hotel—and to base any decision upon the expert findings.
Attend the HPC Public Hearing on October 30, 2012, at 7:00pm at City Hall.
Attend the Planning Commission Public Hearing on November 7, 2012, at 7:00pm at City Hall.
Contact your Councilmember and/or Mayor through Cheri Johnson <email@example.com> or directly.
Crucial and detailed information from Mr. Lankford is provided on the following explanation of the analysis page. It is the substantiation of the analysis summary above.