Adaptive Reuse And Sustainability - Defining Hospitality - Episode # 138

Dan Ryan: Well, hey everyone, welcome back to Defining Hospitality. I'm Dan Ryan, and as we step into 24, I just wanted to do a little special retrospective, a look back at the strides we made in sustainability over the past two and a half years. as like a sub theme of the overall definition of hospitality.

So, the journey over the past two and a half years has been filled with insights and innovations and really great guests. And it's not just about designs, it's also about shaping a future that we can all thrive in. In 2022 and 2023, we talked to some remarkable changemakers. We had Jo Joanna Abrams from MindClick.

Um, you remember her? She's still out there making a huge difference, uh, getting manufacturers and brands all on board to effect change within our world of hospitality design. Um, her vision of sustainable hospitality, it's not just a trend, it's a necessity. We also had Dieter Cartwright of Dutch East Design remind us how integral sustainability is in every brushstroke of their designs.

And this idea of not just one certification, but layering. many different certifications or, or, or means of measurement to affect change. Because if we can't measure something, we can't change. And then who can forget recently my new friend, Bruce Becker, the man behind North America's first zero emission passive house hotel, the Hotel Marcel, which is a member of the Hilton Tapestry Collection.

And really he is just a true testament to what's possible if you really set a vision. His vision happened to be or not even happened, happens to be, if you make a decision that there should be no, um, fossil fuel emissions, zero emissions in the operation of any commercial real estate asset, all the other difficult choices, or not even difficult choices, all the other choices become subordinate to that.

And it's pretty amazing, and it's a really true testament to what's possible, um, within hospitality. As a leader within the commercial real estate segment. Um, and lastly, Heather Cezanne from Nuovo Re. Um, she showcased how sustainable development can both be innovative and practical with some of her examples of adaptive reuse.

And that was a really exciting, uh, great episode as we finished up the year. So. I know we're all looking down the barrel of 2024. There's new challenges, but there's also incredible opportunities. And this year I have this theme. I'm going to say it a lot. I stole it from a friend of mine, uh, more in 24. So let's commit to not just talking about sustainability, but actively integrating it into every aspect of our work and lives.

The smallest difference matters from materials we use to the experiences we create. Every choice matters. So stay tuned as we explore this more in 24, bringing sustainability to the forefront of our conversations and turning ideas into actions. Um, I'm going to definitely make an effort to always bring this up, see what's new on the front, um, in everyone's niche specialty with respect to Sustainability.

And really, hopefully all of these ideas that we can bring out into this platform will turn into actions. I know it's a little too soon to talk about it, but because these episodes have resonated so much, I'm launching some initiatives to help bring people together to talk about this and see that there is an ROI.

It does make financial sense. And like Bruce said, okay, we have hospitality for the guests and the people working in the hotels, but there's also the. important idea of hospitality for the planet. So join us as we continue to define hospitality responsibly, creatively, and sustainably. Let's make 2024 a year to remember.

Thanks and enjoy this retrospective.

Dan Ryan: As humans, when we hold the mirror up to ourselves, sometimes we don't like what we see. And I think what really is intriguing about what MindClick has done and the platform you've created is, okay, you know what, let's hold this mirror up and see really where we are granularly from cradle to cradle, cradle to grave, cradle to wherever.

And, okay, you can see you're really good in some places. But then we can see, ooh, that's maybe not so good. And when you feather in, like, the overall idea of hospitality and these guest rooms where there's Almost an implied engineered obsolescence in kind of what we're doing. Cause we have to keep things fresh.

We have to keep inspiring and we have to keep impacting our guests, um, to be able to hold that mirror up and measure and have a baseline is really exciting to me because, okay, we might not like what we see, but once we measure, we can affect change,

Joanna Abrams: but there has to be a reason to measure. And I think that's, what's changed in the marketplace.

You know, you asked me, why has it taken eight to 10 years and that's the why. Because, you know, what reason did an owner who is, you know, the one writing the checks have to do this? What was their incentive? What was the ROI for them? You have a few, a handful, 1 to 2%, maybe up as many as 5 percent that are doing it because they understand and the Recognize the impact to our industry, the impact to the livelihood longer term, and frankly, health for people on the planet, right?

So they get it. But what about the rest of the 95%? What does it take for them to get on the journey? And that's where the sea change has occurred when you have, you know, um, Uh, Larry Fink from BlackRock, who has, you know, completely changed the game from the financial community. It's not political anymore.

It doesn't matter who's going to be in the administration of the White House. It's the financial community has put their foot down and you have all of the big banks have committed that by 2050, 100 percent of their lending will be carbon neutral. I mean, that's huge. And they're starting to measure today.

And so the financial markets are, yeah.

Dan Ryan: Just going back to the Larry Fink front, because I've talked to a bunch of people, and it seems to me that he wrote a letter to all of his investors and, and the companies that he invests in. So his, the CEOs of all the companies that they, as asset managers, invest in.

Basically saying exactly what you said, it is so important to be able to measure. It is so important to do here. And I think from the conversations that I've had, um, has been going around for a long time and need to do it, but he was really the tipping point. And I think one of the big voices of the tipping point was Greta Thunberg.

I can't say her last name perfectly because I don't speak Norwegian. Just holding up that mirror to all of us and saying, Hey. We need to make a change. And he did it. I think for, I think his intention really was truly, yes, there's a profit motive, but also more than that, I think it really was, we have to change.

We are on a path to nowhere.

Joanna Abrams: I think that's absolutely right. And I would say that, that Greta is the spokesperson for a generation who has. Um, grown up seeing things happen so quickly in terms of a changing climate and a changing world, and, um, they are much more informed and aware and are challenging all of us to do something about it.

And so it's not just, you know, Greta as an individual, but it's, it's a primary. Job, uh, recruiting requirement, right? If you are talking about the initiatives that you have underway from an environmental and social responsibility standpoint, you're not as appealing to, you know, today's, um, the, the, the workforce of today.

And it's not just about lip service. They really want to see action. And that's just a sea change. And we're also seeing people that have risen into management roles now who share these same values. And now that they're in a position to do something about it, they are doing something about it.

Dan Ryan: you're, you've, you feel like you guys are going a different way. How do you bring it back and create that space in so that it's, um, collaborative and that at the end, you're, you guys are all good with, with the path that you're going. How do you create that space and what do you do with it? I guess is my

Dieter Cartwright: question.

Yeah, you, you, you, you have to hand it over. You've got to let go and, and acknowledge someone's direction. And, um, uh, and ownership. That's, that's the way we look at it. I mean, we just opened HOTA to myself, uh, like, maybe not even 4 weeks ago. Um, that is an example where 1 of us, uh, led the overall cohesive design vision.

That was Lara. And then the two other partners come in and support in our various expertise, um, understand the, uh, the overall, uh, direction. Mm-Hmm. , own it, buy into it, and then be able to, uh, collaborate, provide input, uh, and take ownership of smaller parts. Based on that kind of core direction, that core set of principles that have been established.

So I,

Dan Ryan: so

Dieter Cartwright: you're, you're there enough. That's one project. That's a good

Dan Ryan: example. No, but you beat me to the punch on Hotel Marcel, because actually I wanted to get there at some point, but let's just do it right now. For those of you who don't know, Hotel Marcel, it's a Hilton Curio in New Haven. It's not a Hilton Curio.

What is it? Tapestry. A tapestry. I'm sorry. It's a, it's a tapestry by Hilton. Apologies. Um, it's in New Haven. The name, the hotel, and where it is, I think As important as all that is, the most important thing, I think, is that it's the first net zero hotel in North America or the world? No, no, in the U. S. In the U.

S. Okay. Yes. So, for those of you who don't know, I would like Dieter to explain what net zero means. And as you're explaining that, to me, I think from a sustainability perspective, as like humanity, I think it's a great first step. Where do you see this going into the future? So,

Dieter Cartwright: it's got a couple of other accolades it's shooting for as well.

Technically, it's not net zero yet. It has to have one full year of operation. So you see it through all its seasons, see it perform in all months of the year. Essentially, net zero means that it's using less than it gives back in very simplistic terms. It's zeroing out. It's also aiming to be a lead platinum in hotel.

Uh, and, uh, shooting to be the first passive house certified hotel in the US. And that's for, that's sort of, that's a US, sorry, European certification that our client is, uh, is implementing in the building as well. So there's, there's sort of 3, that's a Venn diagram of 3 overlapping, uh, set of parameters. Um, what's interesting about net zero though, is it, you, you are.

You're not actually required to be disconnected from fossil fuels. You can be net zero, but using fossil fuels, but in this case, we're completely disconnected from all fossil fuels. So, uh, even the, uh, the commercial kitchen on premises for the restaurant functions on electricity alone, no gas. Really? So, they're the, they're kind of the three targets.

That's one big aspect of the, of the. Of the project, uh, but also, uh, doing an adaptive reuse of a mid century Brutalist icon. It's, uh, it's also pretty awesome. Yeah, I

Dan Ryan: mean, the building as a, as an example of Brutalism, like, right off, it's kind of like, close to the water, near the freeway, by the train station, it is like It is this huge monolith and to see how that's been reimagined as a hotel is like completely mind blowing and from all I haven't been there yet.

I will go soon, but it's like it's from all the photos. I've seen all the press. I've read about it. It's just it's amazing. And it's when you're walking in, it's from what I'm seeing is totally not brutal in any other. Anyway, shape or form? No,

Dieter Cartwright: no. The building, it can be a little alienating. Um, yes, it's in the IKEA park.

Well, it's right next to the 95. I 95. Um, our, our goal was to reintroduce the public to brutalism, to show them that a, uh, this large concrete exoskeleton. Could actually house something very warm and inviting and humid inside. It's a matter of opinion, how, what you, how you regard the exterior, um, you know, go to Connecticut, say this building, uh, you know, um, I'm sure there are I think it's beautiful.

Um, I also have a, you know, close and long relationship with, with Brutalism, living in London for a while, but, um, we really show a soft upper belly to that by stepping inside, uh, engaging with some of the same principles, you know, truth of materials, like, like the cast concrete on the exterior, um, but creating something really inviting.

And human and not alienating, not highbrow and forcing some historic nostalgic agenda. It's just this, this is a beautiful place for people to socialize, to meet, uh, to stay a few nights, have a meal, hold an event. And then

Dan Ryan: for all the people that say, and let's just use inhospitality, oh, net zero, it's not realistic or it's too hard or whatever objection they may have.

How do you handle, like, from your experience, how do you handle those objections? Number one. And number two, what, how does this excite you about the future?

Dieter Cartwright: Um, I mean, I acknowledge those objections because it is hard. Um, it's. It's especially difficult, um, in an adaptive reuse, because you've got to fit, uh, in some cases, complex building systems into an existing building.

Uh, but ultimately, if you just, and our client will say this too, um, if you just make the decision to disconnect from fossil fuels and find a way to generate your energy outside. Uh, it, it's, you know, if you make that decision or set it as a target, uh, perhaps you can achieve it, but don't, don't treat. I think each classification or qualification in sustainability is really important in its own right.

I think they really work when you layer them up. Take the lead. The Passive House, uh, Net Zero, Set, you know, once you layer these, uh, qualifications up, that's when you start to get a book that's performing really well on a sustainability level.

Dan Ryan: I'm just so blown away by the 300, 000 in savings spread out over 160 plus rooms. Because if you, not only from a free cashflow perspective, what does that do from, from putting sustainability at the forefront, like at the, at the top of your vision for what you're trying to execute, what does that do from a valuation perspective, especially considering like, obviously you have leverage and all this, it must be a multiplier of incredible amounts, especially because you're, you're also paying yourself first.

After the management and brand and everyone else gets the, gets the top

Bruce Becker: line. Yeah, no, it's, um, you know, it probably means the hotel's worth 5 million more than it otherwise would be. And also, um, I've been to a number of, uh, real estate conferences, uh, and listened to the most senior people for European funds.

And they're now saying that they're not going to invest in buildings that are using fossil fuels. I mean, they're Uh, the ESG is, is being driven in large part by the capital and if you're, um, if you're creating a hotel that has a lot of carbon emissions, it's going to be a lot harder to sell at the end of the day.

Also, states and cities and countries are, uh, beginning to impose big penalties for fossil fuel use. In Manhattan, or actually in all of New York City, for buildings that are over 25, 000 square feet, they're rolling out a carbon tax of over 500 a ton annually, which means that hotels this size, if they continue with business as usual, they're going to be paying 200, 000, 300, 000 a year in penalty for that.

So, there's a great upside to the bottom line and also to the environment for, um, pivoting and embracing this technology that's available. Um, but there's also a real, a real, um, stick if you don't do that. And, uh, um, there's also, the market is, is clear that, you know, two thirds or three quarters of the traveling public cares about sustainability.

Um, we can't escape it after a year like this one with crazy fires and storms and, um, and smoke. I mean, even if we're not having fires here, we're getting it from elsewhere in the country and elsewhere in the world. Um, it is a problem. And there's an article in the Times today that, um, unfortunately, despite all the pledges that countries have made with the Paris Accord, the emissions keep going up every year.

So there is, um, the time to act is now. Uh, there's no reason not to. I think the reason that it hasn't been done before Yeah, that's

Dan Ryan: my, that's actually my, my other question, like, a real question, like, why is it not, why has it not been taken on? I, I know that a lot of the big REITs, a lot of the big, uh, private equity firms now, it's very important to the, the people who lead those companies to incorporate this.

And I, I, I, it's, I think it's either, it's two, twofold. Either they genuinely See that the time to act is now because it the tail risk from not doing anything from an environmental perspective could Impact all of their real assets around the world so there's a financial motive or like the retail human like People care now and that's the the customer in the market that they have to share change or the third one is It just makes financial sense, and maybe it didn't make financial sense until recently, but like what's been the holdback in your opinion?

Bruce Becker: Well, first of all, you're right, all of the brands have pledged by 2030, which is, I mean, that's seven years away. They have pledged, um, significant reductions in, uh, fossil fuel emissions. Um, Hyatt, uh, has pledged a 71% reduction, Marriott, 65%. Uh, Accor 62%, Hilton 53%, ISG 37%. They've all gone on record saying they're going to make these reductions.

However, the reality is if you look at the Cornell. Benchmarking index for full service hotels. The emissions are actually going up each year by double digits. Uh, there was a moment because of the, um, maybe because of the pandemic when the, the total emissions look like they were holding even or going down, but they're going up and, and, uh, the growth of all the world economies is still relying heavily on fossil fuels.

So we have this disconnect between what people are actually doing and what they want to do. The reason it hasn't happened. The reason that we're the first here at Hotel Marcel puzzles me, but I think it may be the same reason why our approach is different. That I'm fortunate to have a hand in every discipline, from the finance, to the design, to the development.

Um, And to, um, you know, selecting a brand and, and, and working with the manager. And so I have this integrated approach. It's really no one's, if you ask a typical development team, who's in charge of making sure you don't use fossil fuels, no one would raise their hand because they're all going to look to the person, not to their right or their left and think, well, no one gave me this assignment.

So it's just a role that no one has had yet. Now the brands have. Made pledges, but they don't really control which engineer gets hired and what they're told to do. The hospitality industry is, in many ways, is, uh, it's so complicated and so hard to just open a hotel, um, that, you know, is on budget, on schedule, and can pay the mortgage that, uh, I think there's a tendency to just repeat that.

successful models, you know, which is the whole basis for the hard branded hotels. You know, you have a recipe that works, so you repeat it and you expect the same result. If you're going to, um, overlay all the thousands of decisions that get made and add one more criteria, I mean, everyone wants to make hotels as beautiful as possible.

They obviously want to have a, a balanced operating budget and a balanced development budget. I, apparently we're the first. Uh, development team that has said, in addition to everything else we have to do, we're just not going to use fossil fuels. Um, once you make that decision, everything else falls into place.

It's actually quite effortless. It's the same amount of effort as buying an electric car versus a gas car. You just make a different consumer choice. But you do that about, you really only have to do that about 15 times, you know, when you buy your kitchen equipment, when you buy your laundry equipment, when you buy your, um, hotel shuttle vehicle.

Dan Ryan: When you're evaluating a new project for your company, um, and you're, you know, you're, you're walking the property, you're doing the back of the envelopes and then you're like, okay, let's, let's see if we can make this thing happen. Um, how, I know you've said, you've said the word team and how important the team is many, many times in this conversation, like what's your.

Process for each, cause each process, each project is totally different. Like, how do you think about finding and assembling that team?

Heather Ciszczon: Yeah, that's a, that's a great question. And I think one of the things to back up on, um, I'm not going to profess that we've done this a million times. These projects tend to take a little bit longer and then with COVID and with some other challenges we've had, um, historic tax credits, we, we pursue those, and sometimes they can elongate a project, these, these projects can.

easily take three to five years. So, uh, to get reps, we're in this for the long run, and I still have a lot to learn. But for every project we look at, it's, it's very specific to its, to its locale. And you kind of go in and you let the building tell you a lot about what it's doing. I think part of it is having teams that have experience, right?

You, you need teams who say, I know historic buildings. I know how to work with them. I know how to work with the SHPO and NPS. People who say, Oh, I've worked in historic buildings, but they haven't done the tax credit work. Those are, those are two separate things. So it's really finding a very honed skill set.

And then, um, working with our operator, we work a lot with New Waterloo. They're out of Austin, Texas. And they, they help establish, they create the, the North Star for the project. So, you know, we find a building, um, It's in whatever city, historic, and they'll create a North Star, and we all kind of work on that, and then we look at that North Star and go, okay, is there, I don't know, depending on what it is, is there a certain energy level or design aesthetic or whatever.

Um, is there something special about this that might need a certain interior designer? And then you also look at all the technical aspects too, like, okay, I think we're going to need, you know, this acoustic person, or we're going to need someone special to look at this and who's got the right skill set.

And then it's a lot of interviewing too, to talk to people and say, here's what, here's what is important to us for this team, for this project. And then finally, um, I mean, one of the things that's really important to us, to, to Nuovo Re, as we develop these historic properties, is the whole reason behind it is that we're interested in, in social and environmental impact in these communities.

We're, we're specifically saying Okay, right now this neighborhood or, or this building may not be the best, and if we come in having a hotel there with all these new jobs, it's a 24 7, 365 energy hub that's happening, how can we create, um, change in this specific neighborhood that, that's really transformational, it's catalyzing a, a neighborhood That's what our end goal is.

It's not just like, hey, we have a hotel, it's great. We're making change in a neighborhood and it's, it's, it's deep. It's high. There's people who now have jobs available and it's More people on the street. It's that Jane Jacobs theory of people on the street, which causes security, you know, and safety to no longer be the issue it was, but it takes time.

And so we're trying to prove that out, but all these things come together. And so there's part of that mission and ethos that when we're, um, putting a team together, I want to make sure someone's, you know, just conscience is there too. Are they interested in that? And if they're really not, then they're probably not the right member for our team.

They But I really hope that they share that end goal with us because it's meaningful. Um,

Dan Ryan: I want to dig into a little, cause I've had a couple of conversations recently. Um, like I said before, I'm just adaptor briefness and sustainable, um, development. And I'm intrigued by the tax credit work. You said something about like the tax credit work as a whole requires a whole different skill set.

Um, and I assume a lot of the tax credit work has a lot to do with making some of these more challenging buildings pencil out. Um, What's so challenging about it, and how do you, just enlighten me on that, like, what's the most challenging

Heather Ciszczon: thing about it? Yeah, um, so there's kind of, uh, typically, two historic tax credits, um, available, uh, to a project.

One would be the state, and one would be the federal program. And, again, it's all behind the same mission of revitalization of, and preservation of old buildings, right? So Um, like the, the YMCA building for our 21C in St. Louis was a 1926 YMCA. It was actually the model that they used after that for future YMCAs.

Like they said, this is the perfect one. Um, so it's the, the program is there to be able to preserve these wonderful buildings. There's a fine line between preservation. and adaptation. So that building was never a hotel, but we're going to make it into hotel. And for instance, one of the things we ran into was, um, both the, the state and NPS was like, well, you have to maintain these original corridors that were for the apartment units upstairs.

And we're like, well, that doesn't work for the layout of a guest room. And back and forth and back and forth. And we had to give in and we actually had to redesign several of our floors. Um, we managed to do the same key count again, kudos to the team for making that happen very quickly, but it was like, are you really, is that what's important?

Is that what the general public sees as important? But that, that's, that's kind of the, the, the, the, the way you thread this needle is look, I'm, I'm looking for in some incentives here and so you have to make them happy and also we're trying to have a living, breathing, uh, way to adapt this building and to preserve its history.

So there's, there's elements of what's considered the historic fabric of the building. And so you have to maintain those. And, um, most of the time these historic programs don't want to see you recreating history. So you have to be very careful about what you design so that it's, Oh, I can tell as the general public that is new and that is old.

And then in other instances, like in our pool, uh, there, all the, you know, there's existing tile and then we recreate a tile. So, It's not clear, uh, exactly how to necessarily get these people who are reviewing it and the programs, like, it's not always clear what they want. And so you're kind of guessing here and there, and sometimes you go, okay, well, that didn't work.

Try this again. Um, but that's, that's part of it. And that's part of the puzzling.

Adaptive Reuse And Sustainability - Defining Hospitality - Episode # 138
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