Rooms with a Multipurpose View
Colleges and universities of all scopes and sizes are venturing into the hospitality business with the development of campus hotels and conference centers. The rationale for these multipurpose spaces goes beyond the potential for long-term revenue.
By Karla Hignite
"A growing number of colleges and universities view their own hotel as the 'living room' of the campus—the focal point for welcoming visitors from all over," says Mike Fahner, vice president of marketing for ARAMARK Harrison Lodging (AHL). At the most basic level, adding a lodging component on campus can simply fill a space need. Likewise, as the lifelong learning demands of alumni and members of the larger community continue to rise, forward-thinking colleges and universities are realizing an opportunity to build educational alliances with their full array of constituents, says Fahner.
AHL manages about 20 collegiate hotels and conference centers, including Duke University's R. David Thomas Executive Conference Center, a 113-room residential center affiliated with Duke's Fuqua School of Business. "With the growth in academic programming targeted beyond the traditional student through executive and continuing education programs, workforce development, and corporate training," says AHL President Rory Loberg, "a campus conference center serves the community at large at the same time that it provides always-needed overflow meeting space for university business."
Development of a high-end conference center or hotel is also a logical next step for many institutions that have in place the variety of amenities to attract significant and varied conference business to campus. Such amenities range from high-tech, world-class learning laboratories to auditoriums and amphitheatres to fitness facilities and golf courses to gardens and art galleries. According to Mary Ann Boyle, senior vice president of Sodexho Conferencing, one huge advantage for most institutions is that they already own the land. "For those that can successfully finance the infrastructure, the trend is toward a dual conference center and lodging facility," she says. Sodexho, which already provides campus dining services for Endicott College, Beverly, Massachusetts, will manage all aspects of its conference and education center, set to open in spring 2005 and to be fully operational by spring 2006 with the completion of a 75-room lodging component. The entire endeavor is the result of reconstruction and refurbishment to the college's south campus.
Some plans for new construction—like University of Delaware's 126-room Courtyard by Marriott, which opens this month—have been on the drawing board for more than a decade. Other institutions that previously ventured down the hospitality path are undergoing significant expansion. Penn State's Penn Stater Conference Center Hotel doubled its room count with the addition of 150 rooms last August. And Duke University's Washington Duke Inn and Golf Club, a premier hotel on the edge of campus, is adding 100 rooms to its original 200 built in the 1980s as a revenue-generating asset.
According to Larry Moneta, Duke's vice president for student affairs, the university entered the hotel business in large part because of the inadequacy of space provided by the local market. The Washington Duke Inn supports housing needs for Duke's medical center and executive education programs, hosts visitors and families, and serves spillover from the surrounding Research Triangle Park area. The $30 million expansion, set for completion in spring 2005, will also include a conference center and a golf education facility.
Before coming to Duke three years ago, Moneta served as associate vice president for campus services at the University of Pennsylvania. Penn owns four hotel properties: the 55-bed Penn Tower on its health services campus that accommodates patients and families; the 103-guestroom Steinberg Conference Center (operated by AHL) that serves Penn's Wharton Executive Education programs; a nearby 316-bed Sheraton University City Hotel that Penn originally purchased to provide swing space for student housing during major dorm renovations; and its upscale, 238-room Hilton Inn at Penn, built as part of a retail commercial product that also includes a 55,000-square-foot bookstore and 7,000 square feet of restaurant and shopping venues.
"Hotels can become a strategic acquisition and a valuable asset for a university," says Moneta. "They not only solve short-term strategic housing needs—whether for planned renovation, mechanical emergencies requiring a last-minute move of several dozen students, or for overflow enrollments—they also provide space for other campus program possibilities." For example, the Inn at Penn offers overflow housing for the Steinberg Conference Center and the university's expanding executive education programs, and several floors of the Sheraton property previously housed Penn's ESL program and other academic-related programs.
From a business standpoint, the key is finding the optimal mix of core academic and non-academic purposes for your hotel or conference center, says Leroy Nunery, Penn's vice president of business services. "There is a potential financial risk any time you remove from the picture a guaranteed stream of revenue and occupancy to accommodate an academic need, as well as missed opportunities for additional spending by business travelers on other services." While institutions in non-urban settings may have more of a monopoly, institutions such as Penn compete heavily with many other urban and suburban hotels, says Nunery. At the same time that the university completed the Inn at Penn, another 5,000 rooms opened downtown, near the airport, and in suburban areas. "That significantly impacts our average daily rate, revenue per average room, and occupancy."
Those performance measures likewise are affected by price wars or declines in citywide convention business, says Nunery. While occupancy is not a problem for Penn during graduation or homecomings, during summer and winter months, those rates can drop dramatically. "What we continually have to do is build up our business. We are very proactive in going after the usual suspects such as alumni or other campus visitors, but we also work hard to create a series of packages for vacationers and business travelers so that we look as attractive if not more so than any downtown hotel," says Nunery.
By Day or By Night
While the specific reasons for developing a campus conference center or hotel may vary, basic initial questions all institutions face include whether such a venture should be for day use or include overnight facilities, how to finance the venture, and whether to manage operations in-house or partner with a management company (see sidebar, "To Flag or Not to Flag").
The Professional Education and Conference Center at Kent State University's Stark Campus in Ohio opened in the summer of 2000. In line with Kent State's commitment to workforce development, the day-use facility accommodates professional conferences, training programs, and graduate education, providing training to more than 4,000 employees from as many as 100 companies annually. The center is one of 10 facilities in Ohio affiliated with the International Association of Conference Centers, which requires compliance with stringent standards for AV and other technology components, lighting, soundproofing, and ergonomics. Kent's Stark Campus, the largest of seven regional campuses, is five minutes from the Akron-Canton Airport. While the majority of the center's bookings are generated from within the state, the center attracts business from as far away as New York and Texas.
Rather than include a lodging component as part of its center, Kent State partnered with nearby hotels, including a Four Points by Sheraton that can be seen from the center's parking lot and a Holiday Inn less than a mile away, says Tracey Peyton, marketing and sales manager for the Kent Stark Center. "Part of our prerequisite for partnering with a hotel is that it has its own shuttle and agrees to provide shuttle service to and from our center and to and from the airport. The partnering hotels also offer special corporate rates for our conference center guests," says Peyton. "Our relationship with area hotels is complementary. They are happy to provide the overnight stays for our corporate guests in return for the business we can bring to the area with the kind of AV and conferencing capabilities that they lack."
For the University of Delaware (UD), the allure of adding an on-campus, business-class hotel collocated with its recently renovated Clayton Hall Conference Center—in operation as a day facility since the 1970s—went beyond boosting its multiday conferencing capability. In 1987 the university launched a hotel and restaurant management program. During the early 1990s university leaders had entertained the feasibility of building a hotel, but the economic analysis wasn't good. By the time the university revisited the project idea in the 1999-2000 time frame, the outlook had improved, says David Hollowell, UD executive vice president. "When we went back to our board, we sold the idea based on three key points: one, a hotel could provide hands-on experience for students enrolled in our hotel, restaurant, and institutional management program—which had seen steady growth during the past decade; two, we had a conference center that was underutilized during the academic year because of a lack of guest accommodations; and three, in combination with the conference center business, we could use the facility as an amenity for campus visitors, which would help drive enough business through to support it," says Hollowell.
In addition to enhancing current conferencing and corporate training capabilities for the north-of-Boston market, the Conference/Education Center at Endicott College and its kitchen and catering facilities will likewise provide an extended menu of applied learning opportunities for students enrolled in the college's international hotel and restaurant program. Endicott owns 200 oceanfront acres 45 minutes from Boston, but not all of its land is contiguous. The centerpiece of the college's south campus—one-quarter mile down the street from the main campus—is an old manor home that the institution acquired in the early 1950s. To that it added in the early 1960s residence halls and a gymnasium. Then in 1994, Endicott transitioned from a two-year women's college to a four-year co-ed institution. Not long afterward it built an 83,000-square-foot athletic and recreation facility that essentially rendered the south campus gym obsolete. According to Lynne O'Toole, vice president of finance, new residence halls on the main campus likewise fueled ongoing complaints by those still housed in the older south campus dorms—especially in winter when students sometimes had to walk the quarter mile in two feet of snow to the main dining hall.
"While the option was entertained to simply sell the south campus, strong resistance from board members and alumni confirmed the value of the property, even if no longer suitable for its previous use," says O'Toole. Because Endicott College already had an active and profitable conference services business during summer months, one idea that surfaced was to expand to a year-round operation. Market and feasibility analyses confirmed that the north-of-Boston market was an underserved region for a conference facility, says O'Toole. "In moving forward, one priority for the college was to integrate Endicott educational programming with expanded conferencing services. In response, we decided to relocate the graduate school from our main campus to the south campus, with the goal to likewise expand growth of our graduate school programming." In 2003, one of the former south campus residence halls was gutted to create 30,000 square feet of administrative and high-tech classroom space to house Endicott's Van Loan School for Graduate and Professional Studies, which is now adjacent to the conference and education center. The school offers programs for adults and graduate students in business and education and supports traditional study, corporate programs, and distance learning degree programs.
A primary factor in Endicott's decision to refurbish south campus facilities within the existing campus footprint is that the college could not acquire a permit to build any closer to the ocean, says O'Toole. Once complete, the old gymnasium will provide 23 seminar and meeting rooms and a fully wired auditorium. Tupper Hall, the old manor, will become the primary dining facility for the conference center, with the second and third floors providing high-end conference rooms and executive suites. And former residence halls are being converted into single-room executive lodging with high-speed Internet access.
|To Flag or Not to Flag|
Considering a campus hotel or conference center? Partnering with a conference services management company can provide the full array of feasibility analysis, consultation, and technical and marketing services along with expertise in the hospitality and food services arena. Likewise, affiliating with a hotel chain for its flag can garner much-needed marketing and purchasing power.
The University of Pennsylvania’s Hilton Inn at Penn shows up second in a national listing of Hilton properties in Philadelphia. That’s quite valuable from a marketing standpoint, says Leroy Nunery, Penn’s vice president of business services. “Branding our property as the Hilton Inn at Penn instead of the Inn at Penn means that many more visitors will identify with the level of service experience expectations.” At the same time, the branded hotel business presents some delicate operational concerns, warns Nunery. “The hotel business is subject to the same market variations as other types of corporate business—from acquisitions to fluctuations in market perception—regardless of a brand’s performance across the country,” says Nunery. While the Inn at Penn initially broke ground as a Doubletree hotel, it was acquired by Hilton shortly thereafter. Another concern: If you are a flagged hotel, there are national standards for performance that you have to hit, says Nunery. That increases your pressure to compete within local and regional markets.
University of Delaware Executive Vice President David Hollowell knows that Marriott will insist on certain standards for UD’s Courtyard property. But one requirement on which the university will not budge is that its hotel and restaurant students be allowed to actively participate in operations, including a full-semester, eight-hour-per-week rotation through all aspects of hotel property management, says Hollowell. “Marriott has embraced this concept with the knowledge that the students will be under the supervision of management professionals.” Management models for campus hotels and centers can be more complex than commercial counterparts. Since the early 1970s, UD’s Clayton Hall Conference Center has been managed internally by a university conference services department. Now management of the Courtyard property and of the conference center is handled by UD partner Shaner Hotel Group, with ARAMARK—UD’s campus dining services provider—supplying food services for conference center operations.
While Iowa State’s Hotel at Gateway Center was not initially, and is not currently, affiliated with a hotel chain, in its early years occupancy issues led to affiliating with a Holiday Inn franchise, explains Warren Madden, Iowa State University vice president for business and finance. “That relationship continued until two years ago when the hotel board decided not to renew, in part because the franchise had established a set of standards involving capital investments for changes we didn’t think added value, and in part because we realized that this particular franchise was not focused on providing the kind of full-service operations that we needed,” says Madden. While the university currently manages the hotel internally, leadership continues to evaluate whether to affiliate with a different chain better equipped to serve the university’s market demographic, says Madden.
Some institutions find that a mixed management model best serves evolving circumstances. Even though Penn State had historically operated its campus conference center in-house, the inclination of university leadership at the time of building the new Penn Stater Conference Center Hotel was to hire an outside management company for operations, says Gary Schultz, senior vice president for business and finance. “At that time, Penn State’s relatively young management team in place at our Nittany Lion Inn had its hands full with renovation and expansion of that property, so the institution circulated an RFP to operate the Penn Stater for a three-year period and to also bring management on board two years prior for pre-opening work and consultation,” says Schultz. “After that contract expired, we decided it was in our best interest to extend management from the Nittany Lion Inn to operate both facilities.” During the interim, management at the Nittany Lion Inn had gelled well, says Schultz. “We also determined that we could gain economies of scale and share fixed costs if we spread management over two facilities with a single operator.”
However, Schultz is quick to point out that Penn State also made the decision to transition management of The Penn Stater back in-house in light of its target market. “Our primary niche is not business conferences. Our bread and butter is educational conferences, nonprofit meetings, and internal Penn State customers for meetings and full-day retreats,” says Schultz. “The marketing and brand recognition that a private operator would bring is not helpful to us in the same manner as it might be for others concentrating primarily on the corporate and workforce training markets.”
According to Moneta, a key priority is getting a management company that knows of or can quickly adjust to the nuances of higher education. One basic requirement that any college or university should demand is right of refusal on the selection of a general manager, he says. “A management company that is heavy-handed is problematic for a campus operation because the uniqueness of each campus doesn’t allow for a cookie-cutter approach.”
Mixing Business, Education, and Pleasure
On a larger scale, Iowa State University's Iowa State Center is a four-building complex constructed in the 1970s that includes a 14,000-seat coliseum, a continuing education conference center, and two auditoriums. The center complex is also a community meeting facility since the town of Ames, with a population of 50,000, doesn't have other convention facilities. One-half mile to the south at the campus main entrance sits Iowa State's 190-room Hotel at Gateway Center, built in the mid-1980s, which recently completed a $1.8 million upgrade and expansion of meeting space.
According to Warren Madden, Iowa State's vice president for business and finance, 1 million people filter through the Iowa State Center for conferences and events each year. Half of the center's business comes from university-related activities, including the anchor of center activities: college athletics. Entertainment and cultural event bookings include top rock bands and most major orchestras of the world. The university also regularly hosts local, state, and national science competitions and will host the 2006 National Special Olympics. And as Iowa's land grant institution, short courses are offered throughout the year on agricultural technologies, transportation, computer security systems, fire training, and economic development programs.
Penn State University, another land grant institution, has maintained continuing education as part of its core mission since the university's founding in 1855. Penn State's 223-room Nittany Lion Inn, which opened for business in 1931, had been located on what was then the edge of the Penn State campus, well away from core academic buildings. In the late 1980s university leaders realized three things: 1) demand for the inn and its meeting and banquet facilities was regularly exceeding capacity, 2) the inn was no longer able to support the new technologies that many conferees and faculty wanted, and 3) Penn State's academic campus had grown around the inn, creating pressure for more space for traditional academic programs. "Those three factors in combination led to a recognition that in addition to upgrading the conferencing capability of the inn, it perhaps was time to find a site for a new conference center," says Gary Schultz, senior vice president for business and finance.
The site selected for the Penn Stater—still on campus, two miles from its academic core—was based on market studies that indicated the feasibility of a 300- to 400-room hotel and conference center. But with a general economic slowdown in the early 1990s, Penn State proceeded with an initial 150 rooms out of consideration for the local hospitality industry. "That was our concession to not do too much damage to the local hotel market when we opened new in 1994," says Schultz. Four years ago the university decided it was time to add those other rooms.
The Penn Stater's addition, which has included expansion to the conference center, was serendipitous in terms of timing, says Schultz. In the early 1990s, Penn State was also considering development of a research park on campus property. Today, Penn State Innovation Park, which includes nearly 50 private business tenants, surrounds the Penn Stater. "One of the great attractions for our Innovation Park tenants is having access to a conference center and hotel for holding training programs and strategic planning retreats," says Schultz.
While the lodging component of the Penn Stater had from the start been financed through private-sector banks, the original conference center development was financed with a tax-exempt bond. "Previously if we booked a for-profit meeting that was not educational in content, it was difficult for us to accommodate it in our conference center," says Schultz. Recent expansion to the center has effectively solved this dilemma by avoiding the use of tax-exempt financing for the additional 3,000 square feet of executive conference space, says Schultz.
Which raises another key point for campus hotel and conference center development: how to finance these varied ventures.
Funding Models and Profit Expectations
In the same way that no prototype exists for the type of conference and lodging facility selected—from renovating an old mansion to building a high-tech 150,000-square-foot center and 400-room hotel—no one way exists for financing this kind of initiative, says Ron Sopko, Sodexho Conferencing vice president of development.
Duke financed development of the Washington Duke Inn from its endowment. Iowa State's Hotel at Gateway Center was a university foundation construction project made possible by start-up contributions from 35 alumni; it is now fully owned by the foundation. More than a decade ago, University of Delaware board members concluded that the university shouldn't assume financial risk but should instead find a developer to build a hotel. However, when the idea was revisited in 2000, the board recognized that if the university didn't take on significant risk it would have little control, says Hollowell. Ultimately, funding for the project came from taxable university-issued debt. UD set up a limited liability corporation as the holding company of the hotel with the university assuming 75 percent ownership. Its management company partner, Shaner Hotel Group, holds a 25 percent share of the company, which UD is entitled to buy back at a future date if desired, says Hollowell.
As a small institution without a large endowment, the primary issue for Endicott College was how to fund its refurbishment project, says O'Toole. "We initially were contacted by a for-profit group interested in a joint venture, but we ultimately recognized a major cultural divide. Whereas we were looking to integrate conference business with academic programming, this group was simply interested in buying our location and didn't want anything to do with Endicott academics." The final straw came when the company stated that it wouldn't want Endicott students using the beach that connects to the south campus. "While [the company] had deep pockets and would have made funding easy, university leaders recognized that we would be mortgaging the future of the college," she explains. "But we also knew we were onto something that made sense, and we decided to explore whether we could fund this on our own without venture capital money."
Because Endicott had already issued long-term university debt to finance new residence halls, the conference and education center became the impetus for the institution's first-ever capital campaign, launched in 1998. Since initial campaign figures of $5.5 million were set, construction costs in the greater Boston area have escalated. In addition, during renovation of several south campus structures, charred timbers from a previous fire were discovered that had to be replaced. Not wanting to incur any additional debt, the college found a way to fund these additional expenses from its operating budget, says O'Toole. "Ultimately, we plan to generate enough revenue from the center to plow back into our daily operations."
Whereas both Endicott and UD anticipate profits from their conferencing and lodging operations, Penn State's expectation is to remain self-supporting, says Schultz. And while Iowa State's Hotel at Gateway Center is currently a breakeven operation, the Iowa State Center complex has received hefty university subsidies in recent years—something the institution is trying to reduce by driving more events to campus, says Madden. One way it's doing so is by employing Center staff to market center facilities to business groups and nonprofits in the Midwest. The university is also relying more heavily on partners SMG—the arena management company with which it has contracted for the past 15 years—and the Ames Convention and Visitors Bureau, which books university conference business. Those and other efforts could be hampered somewhat by new venues under construction in Des Moines, 40 miles south of Ames, that will be able to seat 16,000 people, says Madden. "The university has gone through budget cuts primarily as a result of reductions in the state's financial support, and we are at a crossroads where we need to make various enterprises more self-supporting than they have been."
No matter the type of venture or its funding model, business officers face a similar set of operational concerns. According to Moneta, where business officers are most likely to be involved in hotel and conference center operations includes helping university leaders determine market viability and ideal management model, evaluating and acquiring financing, and working with the academic side of the house to resolve issues and increase buy-in for bringing business to campus. From Madden's perspective, other business officer roles include helping decision makers address key questions: Will the operation be self-supporting? If not, what level of subsidies will the institution provide? What are the costs to maintain infrastructure?
"It's also important to develop a relevant internal pricing structure," says Madden. At Iowa State, bookable spaces range from basic classrooms and $15-per-night dorm rooms to a full-service business center with high-tech amenities and high-end hotel guestrooms. "One business officer challenge is to ensure that the institution doesn't sub-optimize its space. Facilities should be matched with the right kinds of activities and users," says Madden.
One point of contention common to campus hotel properties and conference centers surrounds university access to space, says Moneta. "In a typical hotel, meeting rooms and banquet spaces are there to fill beds—where the greater profit margin rests. If you let a group on campus book the ballroom six months out, and then two months out you have a request for 200 guests for a five-night stay, you don't want to turn that down because you already scheduled a luncheon," says Moneta. "It's a terrible tension, because most campuses are desperate for more meeting spaces," says Moneta. "You have to be ready to field complaints constantly and to explain the rationale for reservation policies."
On the other hand, you can't be hard and fast with rules about booking space. Bottom line, operating practices are different for a campus-based hotel, says Moneta. "In the general market, your goal is optimizing profitability. On a campus, while you may still have profitability as a goal, there are times when you have to back away from maximum profitability because of other interests." For instance, a trustee meeting may mean you need to forego booking a youth event simultaneously.
Madden concurs. "In trying to bring more business to campus, you have to be clear on university priorities. For certain events such as commencements, you know you have to set aside the space," says Madden. "It doesn't matter if you could also book The Rolling Stones."
Author Bio Karla Hignite is a writer and editor based in Colorado Springs, Colorado.
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