Summary

Hotels can be great places: buzzy hubs of activity and go-to destinations that attract tourists and locals alike. In the context of well-planned mixed-use developments and districts, hotels can serve an even larger purpose: as anchors with dining and other amenities that can enhance the experience of all visitors (not just hotel guests) and drive traffic to the other uses. For these reasons and more, hospitality real estate has the potential to boost the economic viability and value of mixed-use investment properties.

Hotels as Hubs Within the Ecosystems of Mixed-Use Developments

Mixed-use has become a defining characteristic, if not a hallmark, of so many widely acclaimed and enjoyable places. Combining uses such as office, retail, residential, hospitality, entertainment, or recreation can offer incredible convenience and generate a level of human energy and excitement far greater than the vibe exuded by a single use. Evidence suggests that people spend more time and more money at mixed-use developments when the uses are complementary and the overall places are engaging.

The benefits can be realized in mixed-use properties where every aspect of a project is planned by a single developer or owner, and in local districts and neighborhoods that evolved more organically, where zoning allows for different uses, but the individual component properties generally operate independent from each other.

Within many mixed-use developments and districts, hotels can play an essential part. Given the nature of hotels — with people often coming, going, and congregating at different times of day and for different reasons — they can function like beating hearts within the ecosystems of mixed-use developments.

Industry experts increasingly refer to the properties and people who compose and operate a mixed-use development as ecosystems because they feed off each other, support the general health of each other and, ultimately, can heighten the value of the individual operating properties and overall investment real estate.

There can also be a financial benefit to that diversity. Because residential, office, retail, and hospitality uses may respond differently to economic conditions and generate revenue from different customer bases, mixed-use properties can benefit from more diversified cash flows. That diversification may help reduce reliance on the performance of any single use and potentially moderate volatility across the broader property.

How Hotels Drive Traffic to Other Uses in Mixed-Use Properties

With its guests, a hotel has a built-in base of customers who patronize other uses in a mixed-use development. The opposite is also true. Think of the hotel guests who are in town to attend a performance at a theater around the corner … who dine out before the show and go shopping the morning after. Or the office workers based across the street who consider the hotel rooftop bar as their after-work happy hour hangout.

Hotels in the context of mixed-use developments know no boundaries, literally and figuratively. Uses spill out, roll into, and collide with each other, often contributing to a multisensory experience.

Well-curated mixed-use developments are larger than the sum of their parts. They are not defined solely by any particular use, but by all of the uses that a development or district collectively offers. That collective experience can also have economic implications. Residents may place greater value on living within walking distance of restaurants, grocery, fitness, entertainment, and other amenities, while office tenants may value those same conveniences as part of the employee experience. When the mix of uses creates a genuinely desirable place, that experience can support stronger demand and, in some cases, premium rents or lease rates compared with less amenitized alternatives.

Hotel guests, office workers, residents, arts patrons, diners, shoppers, tourists — they all experience mixed-use developments in different ways and can be energized by them.

The Power of Coordinated Amenities and Programming, Plus Planned, Shared Infrastructure

The element of planning is even more important to, and apparent at, successful mixed-use developments and districts. If such areas are to function well as places where people live, work, and play to varying degrees, amenities and programming need to be coordinated carefully so engagement is facilitated versus hindered, and the experience of users is heightened to its full potential.

For example, if food trucks are invited to cater to office workers during the business day, how does that affect shoppers who are running errands and dashing in and out of adjacent retail stores at the lunch hour? The operation should be carefully choreographed. The same can be said of an art walk, sidewalk sale, or recreational event that is proposed to occur on a weekend when the hotel is at maximum capacity for a special event that requires numerous trucks be set up around its perimeter.

Amenities and programming have impacts on parking, loading, transportation, circulation, security, maintenance, restrooms, and more. All those considerations figure into the successful operation of a mixed-used development or district. In a mixed-use development there’s likely a “maestro” who performs the coordination function on behalf of the property owner or manager. In a district or neighborhood with multiple property owners, the local government or a designee such as a private authority typically is responsible.

How Hotels’ Service Focus Can Positively Affect Operational Performance

Perhaps the most distinctive contribution hospitality real estate brings to a mixed-use property is intangible: delivering experiences as a service. The fact is, hotels historically have been built around the notion of providing service to nightly guests, bar and restaurant diners, convention and meeting planners, and all manner of special event hosts including wedding parties. Hotels — by design of the physical spaces and the organization of service staff — are built to provide service and experiences.

In the context of a mixed-use development, the hotel “service ethos” has the potential to be a guiding model of how other occupiers can better serve their patrons, be they shoppers, diners, office workers, tourists, or others. To the extent mixed-use developments can provide integrated, higher-level service across the property and use types embedded within a mixed-use development, the more likely the experience will be memorable, the engagement will be deeper, and a sense of place will be created and evoked.

That’s not to say that every office, shop, apartment or other occupier of a mixed-use development should provide concierge service like a hotel, as one example, but that every tenant’s appreciation for providing service should be higher, and certainly deliberate efforts should be made to meet a consistent service standard. To the extent a service standard promotes tenant success, visitor satisfaction, and resident appreciation, there are implications for the property’s bottom line including sales, occupancy, and tenant renewal. This applies both to self-contained mixed-use developments owned by a single firm, and neighborhood districts that may be largely organic.

Similarly, not every mixed-use development or district benefits from a hotel. A local market or submarket may not support the use; the economics may not work. But when they do — when a hotel has the power to anchor or co-anchor a mixed-used development by virtue of the other uses and their potential to feed off each other — not only does the use help create and establish a highly desirable place appreciated by the community, it can benefit the investors who have a stake in the asset class and overall place.