AN EDUCATION IN HOSPITALITY

AJ Capital has created a new hotel chain that caters speci cally to the college and university markets.

By Nellie Day

here are many reasons people stay at hotels: vacations, business meetings, visiting family and friends. The latter category is usually associated with holiday get-togethers where loved ones want to be close, but due to time, space or patience con- straints, many out-of-towners don’t want to be that close. There are plenty of other reasons why family choose WR FRQJUHJDWH DURXQG VSHFLÀF XQL- versities as well: college visits, help- ing their children move into a dorm, graduations, alumni gatherings and reunions, weekend quality bonding
time and sporting events.
It is this market that AJ Capital be- lieves is underserved. So the Chicago- EDVHG ÀUP GLG VRPHWKLQJ DERXW WKDW.

,W FUHDWHG WKH QDWLRQ·V ÀUVW KRWHO EUDQG that caters exclusively to college- and university-anchored markets.
“In most markets, the hospitality RHULQJV DUH GRPLQDWHG E FRRNLH- cutter, limited-service hotels, often lo- cated on the outskirts of town,” says Ben Gottlieb, AJ Capital’s vice presi- dent of acquisitions. “When visiting D XQLYHUVLW, D KRWHO LV RIWHQ WKH ÀUVW and last place that one sees in a given town. We saw an underserved niche and capitalized on a tremendous op- portunity to improve this sector by curating a hospitality experience wor- thy of these unique communities.”
And, thus, the Graduate Hotel chain was born. The chain, which launched in 2014, now has 1,355 keys in nine university-anchored markets across the country. AJ Capital’s most recent acquisition is the 144-room Hotel Du- rant in Berkeley, Calif., which it pur- chased for an undisclosed sum this past September.

Photo credit: Christian Horan Photography

AJ Capital converted the Twin Palms Hotel into the Graduate Tempe hotel

in September 2014. The hotel sits across from the Arizona State University campus in Tempe, Ariz.

GUESTS LOVE AMENITIES: THE SHIFT IN DEMAND FROM SELECT-SERVICE TO FULL-SERVICE HOTELS

While certain companies like AJ Capital explore niches within the hospitality market, others point to overarching trends that may impact the general types of products delivered out West.

The hospitality market has made a true comeback over the past several years as a result of the improving post- recession economy. Business trips are more common, and families and couples are once again traveling for pleasure. To keep up with the increased demand, the hospitality construction and development sectors have responded, add- ing various properties, many of which are select-service hotels in strategic locations.
While this rapid growth has positioned the hospitality sector well, there are signs the market is imminently chang- ing — and that the strategy behind hospitality construction and development must, and will, change with it. The improvements in the economy have driven increased demand for beds and amenities. That same economic upturn has also boosted land and construction prices, ultimately increasing the cost of hotel development. While there is still demand for additional hotel rooms in some markets, others are showing signs of saturation. Hospitality profession- als will need to address both the increased cost of construction and market saturation – and provide a truly unique product — if they are to succeed and compete in the changing marketplace.
Today’s hospitality economy is driven by the consumers’ desire to have a lifestyle experience at a property, while
Like its other Graduate Hotel con- versions, AJ Capital plans to reposi- tion, rebrand and renovate the prop- erty to make it more reminiscent of the community it calls home. Gott- lieb is quick to note, however, that the renovations are not meant to make the property look like a dormitory or frat house.

“While Graduate is a brand, we pre- fer to look at it as a collection of locally centric boutique ho- tels,” he says. “By design, each Gradu- ate has a distinctly GLHUHQW DHVWKHWLF
feeling a connection to the community where the property is located. The hospitality sector will likely need to move away from the development of select-service properties and increase the number of full-service hotel properties if it plans to accommodate these demands. Full-service properties meet all of the integration, collaboration and lifestyle
– one that, through
subtle storytelling, pays homage to its

Gottlieb

needs of both business and leisure travelers in an enhanced capacity, providing everything all in one place.
)RU H[DPSOH, WKH 3DVpD +RWHO & 6SD, ZKLFK LV FXUUHQWO XQGHU FRQVWUXFWLRQ LQ +XQWLQJWRQ %HDFK, &DOLI., ZLOO RHU EXVLQHVV WUDYHOHUV WKH EHQHÀW DQG FRQYHQLHQFH RI KLJK-TXDOLW DPHQLWLHV, LQFOXGLQJ DPSOH PHHWLQJ VSDFH, XQLTXH RQ- site dining options and executive concierge services. As a result, these customers may never need to leave the prop- HUW RU WKH ORFDO FRPPXQLW, DQG WKH ZLOO VWLOO EH DEOH WR FRQGXFW WKHLU EXVLQHVV SURGXFWLYHO DQG HFLHQWO.
Leisure travelers are often looking for the same qualities as their business counterparts when choosing a property. This has led them to increasingly gravitate toward full-service options. Families and couples want to feel like part of WKH FRPPXQLW. 7KLV FDQ EH DFFRPSOLVKHG LQ D YDULHW RI ZDV, UDQJLQJ IURP LQFRUSRUDWLQJ ORFDO ÁDLU DQG FXOWXUH LQWR WKH GHVLJQ RI WKH SURSHUW WR KDYLQJ DPSOH DQG H[FLWLQJ DPHQLWLHV OLNH D KLJK-HQG SRRO, VSD RU ÀWQHVV FHQWHU ZKHUH guests can gather and experience the property together.
3URSHUWLHV WKDW SURYLGH H[SHULHQFHV DQG DPHQLWLHV WKDW FDQ EH VKDUHG E JXHVWV DQG QHDUE UHVLGHQWV DOVR RIWHQ ÀQG JUHDWHU VXFFHVV. )RU H[DPSOH, PDQ KRWHOV RHU KLJK-TXDOLW GLQLQJ RSWLRQV WKDW FUHDWH D FRPPXQLW H[SHULHQFH IRU their guests, nearby residents and visitors.
In addition to increased consumer expectations, geographic location plays a large role in the demand for full- service properties. Coastal areas like California and Florida, as well as major metropolitan areas such as Los Angeles and San Francisco, are primed for this type of growth due to their desirable locations and variety of attractions. On WKH RWKHU KDQG, PDQ VPDOOHU DQG VHFRQGDU PDUNHWV PD QRW KDYH WKH GHPDQG RU WUDF WR VXSSRUW WKH H[SHQVH RI a successful full-service venture.
,Q DUHDV ZKHUH LW FDQ EH HFRQRPLFDOO VXSSRUWHG, H[LVWLQJ IXOO-VHUYLFH KRWHOV ZLOO VHH DQ XSVZLQJ LQ WUDF, DQG QHZ full-service properties will likely compete well in the marketplace. For developers currently in the process of building D VHOHFW-VHUYLFH SURSHUW, LW ZLOO EH LPSRUWDQW WR FRQVLGHU ZKDW FDQ EH GRQH GLHUHQWO WR EULQJ KDQGSLFNHG, H[WHQGHG amenities to the property.
The key to creating a successful hospitality development over the next couple of years will involve understanding how to best incorporate full-service and lifestyle amenities into current and future projects. Successful ventures will truly understand customer desires and will build their properties to meet those demands.

— Bill Wilhelm, President, R.D. Olson Construction in Irvine, Calif.

host community. Think discrete ref-

erences to distinguished alumni as opposed to overt displays of school mascots and colors. Notice that we refer to these markets as ‘university- anchored’ instead of ‘college towns.’” In-house interior design teams VSHQG VLJQLÀFDQW WLPH LQ WKH FLWLHV where a new hotel will debut. They source vintage pieces, interview local

Above is an exterior rendering of the new Graduate Hotel in Berkeley, Calif. The rm purchased the 144-room Hotel Durant this past September.

24 • January 2016 • Western Real Estate Business www.REBusinessOnline.com

artists, and learn the history, culture and stories of the communi- ty. This allows them to capture the essence of the host campuses and cities through the design and amenities.
Gottlieb also believes in capitalizing on the already-established history of a well-known property when the opportunity arises.
“We’re certainly not opposed to new construction — having just completed a very successful ground-up development in Ox- ford, Miss. — but when presented with an existing structure that PHHWV RXU ORFDWLRQ, GHVLJQ DQG TXDOLW VSHFLÀFDWLRQV, ZH ORYH the challenge of a conversion,” he says. “The Hotel Durant was steeped in history and a venerable Berkeley institution. The ho-
7KH ÀUP UHFHLYHG
$31.5 million to ac- quire and reposition the Hotel Durant, which is the closest hotel to the Greek Theater and the
62,000-seat Califor- nia Memorial Stadi- um, where students and parents can

Ray

The entrance to the Hotel Durant in Berkeley, pre-conversion.

RECENT LEASING ACTIVITY

AIRPORT DISTRICT

tel has excellent bones, an irreplaceable location and history that couldn’t be replicated in a new build. In this case, we see more value in continuing the stewardship of a local landmark than in constructing new.”

experience UC Berkeley home foot- ball games. Financing was arranged by Jordan Ray, Ari Hirt, Steven Bu- chwald and David Behmoar of Mis- sion Capital’s Debt & Equity Finance Group. Ray, a managing director with the group, says education is, ironical- ly, key to getting unique projects like a FROOHJH-DQFKRUHG KRWHO FRQYHUVLRQ R the ground.
“These types of deals are not neces- sarily easy for lenders to understand,” he says. “For this particular deal, we educated the market and, in particu- lar, the lender who closed, about the business plan and the demand for this kind of hotel.”
Ray also says these types of deals have been made a bit easier by the fact that AJ Capital now has nine Gradu- ate Hotels under its belt.
“It’s never easy, but once we have educated the market about a product DQG FUHDWHG D ÀHOG RI LQWHUHVWHG FDSLWDO VRXUFHV, ZH FDQ UH-DSSURDFK WKDW ÀHOG
on the next relevant deal,” he notes.

World Famous West Coast Customs, Walmart Superstore

MEDIA DISTRICT

Olive & Thyme (expansion),

Whole Foods Market (opening 2018)

DOWNTOWN BURBANK

European Wax Center, Five Guys Burgers and Fries, Gyu-Kaku Japanese BBQ, Steak n Shake,

Wood Ranch BBQ & Grill, Yard House,

MAGNOLIA PARK

Morphe Brushes, Slone Vintage, Unique Vintage (remodel), The Hangar Grille

NEW DEVELOPMENTS

• Springhill Suites Los Angeles Burbank/Downtown, opened summer 2015

• Tesla Motors Burbank opened October 2015

• Hilton Garden Inn to open summer 2016

• IKEA set to expand to 456,000 sq. ft., its largest

US store in spring 2017

• Nickelodeon expansion scheduled to open 2017

• Talaria at Burbank mixed-use project to include

Whole Foods Market, opening spring 2018

• First Street Village mix-use project with 13,765 sq. ft. of new retail space

DYNAMIC

“You need to make sure your deal works, that you have realistic expecta- tions and that you are keeping the cap- ital stack as uncomplicated as possible. Construction lenders are getting more DQG PRUH ÀFNOH LQ WKLV HQYLURQPHQW. The less brain damage, the better.”
Gottlieb notes food and beverage outlets have also become very im- portant within the properties, as they must both complement the other of- ferings that are walking distance to FDPSXV, EXW VWLOO RHU JXHVWV VRPH- thing unique.
“Hotel restaurants traditionally car- ry stigmas that we strive to reverse,” he says. “Instead of the ubiquitous self-serve pantry and continental EUHDNIDVW EXHW, *UDGXDWH +RWHOV IHD- ture vibrant, yet approachable res- taurants, bars and lounges that gar- QHU D VLJQLÀFDQW ORFDO IROORZLQJ. :H GRQ·W GR VWX ÀQH GLQLQJ RU ZKLWH tablecloths but instead feature out- lets where guests, students and local residents can visit multiple times per week. This is becoming more com- mon, but we use local purveyors and products whenever possible.”
AJ Capital is currently sourcing fu-

BURBANK

For more information:

818-238-5180 | econdev@burbankca.gov | www.econdev.burbankca.gov
ture Graduate Hotel sites and is “ac-
tively looking at all of the obvious West Coast markets,” according to Gottlieb. Other Western-based prop- erties include the Graduate Tempe hotel, which was converted from the Twin Palms Hotel in September 2014. The hotel sits across from the Arizona State University campus in Tempe.

26 • January 2016 • Western Real Estate Business www.REBusinessOnline.com