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Hotel Sweet

February 2017

By Nancy Mann Jackson

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Colleges and universities are partnering with or purchasing hotels and conference centers, using a variety of business models. See how several institutions are generating new revenue, bolstering branding, and benefiting their communities with such arrangements.

In 1983, a fire destroyed a hotel that was located on the main square of downtown Gettysburg, Pa. Five years later, when the hotel still remained vacant without the prospect of redevelopment, Gettysburg College responded to an appeal by the community and invested in a partnership to rebuild the hotel.

The Gettysburg Hotel reopened in 1991, with the college as a limited partner. The institution had multiple goals for the venture, including producing income for its endowment and investing in the community to revitalize the downtown square, says Christopher Delaney, associate vice president for finance and associate treasurer, Gettysburg College. Sixteen years later, the college bought out its remaining partners, to become the hotel’s sole owner.

Like scores of other hotels that are owned or operated by colleges and universities, the Gettysburg Hotel continues to welcome guests to its community and the campus. In Gettysburg and elsewhere, college- or university-affiliated hotels serve a variety of purposes for their institutions. And those purposes govern the business decisions for structuring a hotel project, including operating independently or partnering with a for-profit company, branding the property, and planning for its longevity.

The Ambassador

Many college-hotel partnerships, including the Gettysburg Hotel, start as opportunities for a university to play a positive role in its community. At the University of Wisconsin Oshkosh, leaders realized that after several hotels had closed in the area, they simply needed a place for visitors and conference attendees to stay while in town. While the university’s foundation made plans to build an 80-room hotel and conference center, community leaders asked them to reconsider.

“They wanted us to join them in purchasing and renovating a vacant, 176-room hotel downtown,” says Thomas Sonnleitner, vice chancellor emeritus at UW Oshkosh. “We thought it through and realized that it made sense to join with other investors because hotels are risky endeavors.” With some financial backing from the community foundation, tax increment financing, individual investors, and a bank loan, the university foundation joined with a hotel partnership group to purchase and renovate the hotel for $16 million in 2012. After extensive renovations, the hotel reopened in May 2013 as the Best Western Premier Waterfront Hotel and Convention Center.

With 50 percent ownership, the university foundation has begun seeing returns on its investment, with which it is funding scholarships for students who graduate from Oshkosh high schools. After the hotel and convention center opened, investors began receiving a quarterly distribution of 2 percent of their investment, starting on Aug. 31, 2014. The distribution has increased to 2.5 percent quarterly (10 percent annually), 3 1/2 years after the facility opened, says Sonnleitner.

While the hotel project is on track to become highly successful and will likely generate more revenue for scholarships or other projects, its primary goal remains the same: It is a perfect place to house people who come to campus for university events, conferences, and visits—and has been an ideal way to give back to the city by renovating a prime piece of real estate.

A hotel can also aid in recruiting, representing the institution in a positive way to potential students. For instance, the Biddle Hotel at the Indiana University Union in Bloomington, Ind., has a long tradition of hosting potential students and their families, says Michael Campbell, associate director at the Indiana Memorial Union. “In addition to being a first impression for visiting students, the hotel plays the role of an ambassador,” he says. “It provides us with the first opportunity to make an impression on a new Hoosier.”

The Revenue Generator

Some college- and university-affiliated hotels are mainly focused on building revenue. For instance, Indiana University Bloomington has the second-largest student union in the United States—and more than 75 percent of the union’s budget is generated by its on-site Biddle Hotel and Conference Center. “Fiscally, the hotel is the principal financial revenue source for the student union,” Campbell says. “All the revenue is used to support the student union’s operations, which include a nearly 500,000-square-foot building. It [the hotel] is instrumental in allowing us to do all the things that a student union needs to do.”

There has been a hotel component associated with Indiana’s student union since the 1930s, and the Biddle has been in its present location since the 1960s. Owned and operated solely by the university, the hotel has never been affiliated with a management company or a national brand, Campbell says. Its tradition has continued, and the revenue continues to flow, through room nights, conferences, and parking.

Even if revenue generation isn’t the chief goal of a college hotel, a successful project will nearly always make a profit—eventually. In Oshkosh, leaders expect the hotel to reach full profitability after five years of operation, Sonnleitner says.

But sometimes, strategic changes are necessary to achieve financial goals. For instance, although Gettysburg College started as a limited partner in the Gettysburg Hotel, it purchased the remaining partners’ interests and became sole owner in 2007. “While this decision was multifaceted, the primary reason for the acquisition was the belief that the hotel was an underperforming asset and that sole ownership was the best path to realize its upside potential,” Delaney says. “Additionally, the decision was somewhat easier because the hotel was a stabilized operation and market leader, with the distinct competitive advantage of being in the heart of Gettysburg on the main square.”

Nine years later, the institution is highly satisfied with the hotel’s performance and its positive economic impact on the city, but it hasn’t necessarily been easy. For Gettysburg College, it has been crucial to have a strong management company in place to run the hotel’s day-to-day operations, Delaney says. “Institutions should be mindful that the road to stabilized performance can be a bumpy one, and a successful hotel requires continual reinvestment in its facilities and personnel to maintain its competitiveness,” Delaney says. “Make no mistake, there is a lot involved in owning and operating a hotel, and not having the right partners in place can divert your attention away from more important activities on campus.”

The Land Bank

The Boar’s Head Inn, a landmark in Charlottesville, Va., opened in the

1960s, and when the hotel and its 450 surrounding acres became available for sale in the 1980s, the University of Virginia Foundation purchased them. “The mission of our foundation is to manage financial and real estate assets for the long-term health of the university,” says Fred Missel, director of design and development for the UVA Foundation. “When the land became available for sale, and there already were relationships in place with the university and the hotel, we realized that Boar’s Head could serve as a ‘living room’ for the university and a place to hold conferences, in addition to providing the university with room for future growth.”

The Boar’s Head property, adjacent to the university grounds, has been an ideal location for university growth. A few years ago, when the 400-acre Foxhaven Farm, which connects to the Boar’s Head property, became available, the foundation acquired that as well. “That much land adjacent to the university is important for the potential growth of the university over hundreds of years,” Missel says. “Right now, we are holding onto it and managing it as a resort in a way that makes the university proud, but future plans for it will depend on the needs of the university.”

Since purchasing the land, the University of Virginia has constructed its McArthur Squash Center at Boar’s Head Sports Club. The home of the Virginia men’s and women’s squash teams, the center is a state-of-the-art, 33,000-square-foot facility. The university also has plans to build a

$12 million, 12-court tennis stadium on the property.

While the UVA Foundation holds onto the Boar’s Head Inn for land-banking purposes, it runs a popular, successful hotel in the meantime. The foundation owns and operates the hotel without an outside management company, but relies on its general manager to oversee the hotel’s 450 employees, Missel says.

Using university-owned land for lodging projects is not a new idea, but the typical arrangements have changed over the years. “Up until about a decade ago, it was more common for universities and colleges to brand on-campus hotels with a proprietary name,” says Noah Silverman, chief development officer, North America full service hotels at Marriott International. “As time has marched on, the model evolved for many reasons. Today, it’s private developers that typically finance college or university hotels, even if they sit on university-controlled land.”

A Teaching Venue

Still other colleges and universities build or buy hotels to provide educational experiences for their students. For instance, the Metropolitan State University of Denver financed and opened the SpringHill Suites Denver Downtown hotel in 2012, and the college’s hospitality school is attached to the property, providing students with hands-on experience working in an operating hotel, Silverman says.

In its four years of operation, the 150-suite hotel has generated $1.9 million in net profit to date, and is forecasted to provide more than $25 million to the MSU Denver Foundation over the next 20 years. “Students are gaining real-world experience, training alongside seasoned hoteliers,” says Carol Krugman, assistant professor and department chair of hospitality, tourism, and events at MSU Denver. “Not only do we have eight students and alumni working full time in the hotel, three of the managers are affiliate faculty teaching in our program.”

At College of the Ozarks, Lookout, Mo., a campus hotel and conference center is a vital part of the learning environment. As a “work college” that requires students to work on campus 15 hours per week in lieu of paying tuition, College of the Ozarks has several revenue-producing businesses on campus, including The Keeter Center, a 95,000-square-foot multifunctional dining, lodging, and meeting center that has been in operation for 12 years.

Just three miles from tourist magnet Branson, Mo., The Keeter Center hosts more than 400,000 guests each year and draws revenue of more than $5 million. “Because we don’t receive tuition income, The Keeter Center is an integral part of the college’s financial picture,” says Rick Hughes, CFO at the College of the Ozarks. “But in addition to being the front door of the campus, the center is also an integral part of our academic program.”

The college offers majors in culinary arts, meeting and event management, and hotel and restaurant management, and the center offers opportunities for hands-on coursework as well as a student work station. As a work college, College of the Ozarks focuses on teaching the value of hard work, along with its other academic objectives. And working in the campus hotel, conference center, and restaurant is a powerful opportunity for developing a strong work ethic, Hughes says. “Our students learn to work, and they graduate without any student debt,” he adds.

The Right Model

Owning or operating a hotel or conference center may take a different form at every institution. The key to success is determining the right model for your particular campus.

Include knowledgeable partners.

Regardless of the objectives, many institutions find that experienced partners are vital in pursuing a lodging project. For Gettysburg College, hiring both an asset manager and a hotel operator has been indispensable, Delaney says. “The asset manager will play a key role in developing your ownership strategy, assist you in identifying the right operator to execute that strategy, and negotiate the management contract on your behalf,” he says. “There is both a tangible and intangible return on investment in having a good asset management firm; it will provide you the expertise necessary to effectively oversee the management company’s development of its marketing plan and operating budget, and ensure that the operator is focused and accountable on goals for revenue management, customer satisfaction, and profitability.”

A strong management company, Delaney says, must possess the skills and capabilities to understand the marketplace, as well as the ability to execute an effective marketing strategy. And it must carry out that strategy “while delivering a product and experience that is representative and additive of the reputation of the institution that owns it,” he says. “These are no small feats.”

Consider affiliating with a brand.

An important part of the hotel management discussion is whether to affiliate with a national brand. Many colleges and universities with longtime hotel properties have traditionally maintained independent hotels. But with the rise in technology and online booking, many institutions that are new to the hotel business are choosing to affiliate with national chains.

“We just felt that you get more visibility by being affiliated with a chain,” says

UW Oshkosh’s Sonnleitner. Before selecting Best Western, Oshkosh partners evaluated several national chains. They eventually chose Best Western because of its lower fees, partners’ prior experience with the company, and because some of the other hotel flags were already located in the city.

Not only can national hotel chains offer name recognition and loyalty programs that drive guests to university-affiliated hotels, but universities can provide a steady stream of business for the hotel company. “Many colleges and universities make ideal hotel locations because they generate demand all year long,” says Marriott’s Silverman. “They attract people for university-related meetings and business, families visiting for tours and school-year visits, college sports fans and competing teams visiting for games, and groups participating in academic forums and events.”

In addition, despite the demand, many college campuses are underserved by quality hotels, adds Eric Jacobs, Marriott’s chief development officer, select service and extended stay brands in North America. “That’s why we’re increasingly viewing campuses as well as college and university towns as development opportunities,” he says. “Usually, private developers own and operate these hotels, but sometimes colleges and universities become involved because they own an existing hotel or they own land that can house a hotel to be owned by either the college or a private developer.”

Leave management to the experts.

Some higher education institutions choose to stay out of the hotel business and instead partner with private industry to meet their visitors’ needs for temporary housing. For example, in 2014, North Carolina State University, Raleigh, completed a selection process to choose a private developer for an on-campus hotel that will join Marriott’s Autograph Collection, Jacobs says. Similar projects are underway or have been completed at Yale University, Middlebury College, the University of Vermont, and Boston College.

Other Considerations

For those colleges and universities that want to get involved in the hotel business, it’s crucial to understand the resources and investments that will be required over the long term. Before moving forward, undergo a pro forma review, understand projections for occupancy rates, and ensure that it’s a solid investment, says Oshkosh’s Sonnleitner. In addition, “it’s important to make sure that you have relationships and partnerships with businesses and the community, because the bottom line is occupancy rates, and you need people driving guests to your hotel,” he says. “We are fortunate to be in a city with lots of events and we get a lot of traffic here in the summertime, so that has helped ensure the hotel’s success.”

In addition to ensuring that the market can support a hotel, colleges and universities must think long-term, realizing that buying or building a hotel is not a one-time investment. “Technology advances at such a fast pace, and the amenities that guests expect to find in a hotel room continue to evolve, so there is always a need to update,” says Indiana University’s Campbell. “If you build a hotel, you will probably need to reinvest in it every six or seven years.”

For instance, the Indiana Memorial Union is currently in the midst of renovating its Biddle Hotel and Conference Center, with a price tag of approximately $8 million, Campbell says. All the guest rooms will be updated with new furnishings and new technology, and the project is funded partly by the union and partly by the university.

To be successful in the lodging business, colleges and universities must first determine their objective, whether that is to help build the community, provide housing for guests, boost revenue, bank land, or something else. With the overarching goals in mind, college and university leaders can take deliberate steps and partner with appropriate collaborators to establish the lodging facilities to meet their needs and the needs of their campuses and visitors.

Related Topics

Institutions should be mindful that the road to stabilized performance can be a bumpy one, and a successful hotel requires continual reinvestment in its facilities and personnel to maintain its competitiveness.

—Christopher Delaney, Gettysburg College