Structural Integrity of Hotels

Will your hotel stand the test of time, an earthquake, or the next storm?

When a devastating earthquake hit Myanmar in March, a hotel building under construction in Bangkok collapsed. Media reports indicated investigators had found the presence of substandard steel among the wreckage of the 30-storey structure.

In recent years, I have been contacted by people in the investment and insurance industries. There’s a growing concern that aging hotel properties may be at a growing risk due to a lack of focus on maintaining the structural integrity of the buildings.

They point to shipping, and cruise ships in particular, where Safety of Life at Sea (SOLAS) conventions mandate that cruise ships undergo a complete survey of the hull in a dry dock at least twice every five years. Intermediate surveys are also mandated.

There are similar obligations for aircraft before they are licensed to fly and at regular intervals thereafter.

Hotels don’t have to follow similar mandates, and there is a risk that, over time, costly, potentially life-endangering structural deficiencies will appear.

In the aftermath of a fire at the Düsseldorf airport, German authorities stepped up control of buildings where large numbers of people gathered. The impact on hotels was enormous. Hotels that were found to have structural life-safety deficiencies faced expensive repairs that would go unnoticed by guests, yet would force the hotels to close if they were not carried out.

More recently, well-known hotel properties were sold but then faced expensive renovations before they could rebrand and reopen. London’s iconic Savoy Hotel was sold in 2005. It closed for renovations in 2007 and didn’t reopen until 2012. The cost of the renovation was equal to the cost of the entire building when it was sold.

In an interview with a London newspaper before reopening, the hotel’s general manager was quoted as saying,

“The state of the building was a lot worse than we had envisaged. When we closed the doors and peeled back the layers, it became clear that everything from the electrical cables to the plumbing was in very poor repair.”

If that’s what it was like in such an iconic, admired property, what is it like in the multitude of other, aging hotels around the world?

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May is Building Safety Month in the United States. Is it time for hotel owners and investors to take a closer look at how hotels are designed, built, and maintained? Should investors show more concern and do structural due diligence before signing off on the purchase of a hotel property?

To stay compliant with brand standards, hotel management contracts often contain clauses mandating owners to spend up to 8% of revenue on furniture, fixtures, and equipment maintenance, but physical integrity aspects have been outside the scope and focus of asset managers.

Many asset-light management companies have reduced or removed physical integrity expertise in their hotels. Where once there was an engineer, there is today, at best, a semi-skilled maintenance person.

Should this simply be a case of buyer beware, and let the market determine whether hotel owners maintain their buildings better?

With little information on hotel websites or even in annual reports about physical integrity, room prices are unaffected by the state of the property. Furthermore, when the physical state of hotels is unregulated and unreported, buyer beware is invalidated.

Furthermore, as long as no one is looking at the physical state of hotel buildings, properties are likely overvalued and potentially underinsured.

How many Savoys will it take before insurance and investment communities start asking the hard questions?

Building Safety Month is a good time to start taking the physical integrity of hotels seriously. The loss and cost can be devastating if it gets blown over by the next storm, collapses in the next earthquake, or if the iconic property you proudly raise your flag above turns out to need more money to become fully operational than you invested in the purchase.

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