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Redevelopment – A Shortcut to Profits

Redevelopment properly executed is the quickest and least risky method of investing capital in “bricks & mortar” real estate. Although most Timeshare Developers pursue ground-up opportunities because they feel “new” sells better than “old” or is more controllable, it is not the only viable alternative. A redeveloped or recycled property need not appear old and if properly designed and constructed it can be equally competitive with a new facility.

There are several types of redevelopment that vary from the massive reconfiguration and reconstruction of time-worn and obsolete buildings to the conversion of a relatively recent building to a new and different use from that initially intended. A building does not have to be old and worn out to be a redevelopment or conversion candidate, but it must be well located and purchased at the right price. If it is an older building the deferred maintenance and overall redevelopment costs may be higher, but the fundamental rules of successful redevelopment apply to all types of acquisitions and conversions. The primary rule being that the main variable is the acquisition cost not the redevelopment cost. If there is not sufficient capital in the deal to achieve the final product quality level the market requires then either the purchase price must be reduced or the viability of the entire deal should be reevaluated. Any redevelopment deal that reaches completion and misses the required competitive quality level will be at a major disadvantage in the marketplace.

Time is of the essence

There are always advantages and disadvantages to any development approach, but redevelopment has one distinct advantage and one district disadvantage over new development. Assuming location is not a major issue, the greatest advantage is speed to market. A redevelopment project can be evaluated, acquired and implemented in a few years. Large new development projects, while offering customized new product can require start to finish development time in the 3-5 year range. This extended time creates a significant opportunity to the cost development time-line and increased risk associated with the additional incremental time to implement.

(use as quote?) “Complete and thorough due diligence is a must in order to minimize unnecessary surprises during the development process.”

The major disadvantage is that the investor must work with the existing building’s limitations to achieve the desired product. This will require serious due diligence from a qualified team of consultants and construction experts in order to validate that the existing building can be successfully converted to its intended new use within quality, budget and schedule limitations. Complete and thorough due diligence is a must in order to minimize unnecessary surprises during the development process. If there is any doubt as to refurbishment or replacement, do the math both ways in order to prepare the project with maximum cost and quality flexibility.

Examples...

The following project examples illustrate the extreme differences redevelopment paths can take; yet they both demonstrate quality end products that are financially viable.

The first example is the Wyndham Chicago located one block off North Michigan Avenue developed by a joint venture of Oxford Capital Partners and Wyndham Hotels and Resorts. The 17- story office building was completed in the early 1990’s in a soft office building market. A well-known local restaurant and bar leased the ground floor and the building owners occupied several of the top floors. The hotel developers determined that a full service hotel could be incorporated into the building including a Porte Cochere and ground floor lobby, a ballroom addition, meeting space, restaurant and bar, 417 rooms and suites and all associated with back-of-the-house space. While not a typical redevelopment project, it is a conversion from the original use very early in the property life-cycle resulting in a like-new full service premier location, in a very hot hotel market and implemented in much less time (50% less) than the equivalent ground-up project with no discernable difference to the customer.

At the other end of the spectrum is the Marshall House Hotel (marshallhouse.com) located in Savannah, Georgia. This 150 year old heart pine and masonry structure had been abandoned for forty years and most local people had no idea it had been a hotel until the developers, a joint venture of The John Hardy Group, Paine Webber and Coastal Hotels, purchased it at a very low cost. The resulting redevelopment was very significant and difficult due to the age of the building, the historic nature of the building and the fact that the building had not been designed to accommodate modern MEP systems. All back - of - house areas had to be incorporated into the building or within a new basement constructed below the existing building. At the completion of the redevelopment process the resulting facility became the most historic hotel in Savannah including 68 guestrooms and suites, jazz bar, gourmet restaurant, meeting space and a library / reception area. The property has been awarded both the Historic Savannah Preservation Award and the State of Georgia Award for Historic Preservation. This major redevelopment has resulted in a “trophy” property considered now to be the premier example of Historic Hospitality in Savannah.

While both of these redevelopment examples were for hotel type use, there is no reason why the same approach could not be utilized for Timeshare projects. In fact, at some point the number of available sites and locations for new builds may become limited or over priced which could make the redevelopment approach more prevalent. It also could be a viable approach for more mid-priced product that may be less quality sensitive.

In conclusion, the redevelopment approach is a creative and viable investment method approach for bringing new Timeshare projects to market, especially in infill, urban or site scarce locations. If this method is utilized, pay particular care in selecting consulting and construction professionals experienced in this process for your development team. Take adequate time to evaluate existing conditions in detail, costs and how you plan to modify the existing facility to meet your market needs. Remember the real variable is your acquisition cost, not the redevelopment cost! Keep this in mind and you will have a successful Timeshare project completed years ahead of your new build competitor and you will be sitting on the beach while they are still slogging their way through the development approval process. Good luck and keep recycling!

John Hardy is President and CEO of the John Hardy Group, an international development and consulting services organization offering services such as fee development, project feasibility, specialty consulting, project management, construction management, project accounting and disaster remediation. Located in Atlanta, GA., John can be contacted at 404-256-8800 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it . JHG’s website is www.jhgi.com