Hotels Urban hotels rise in buildings that once held giant department stores By Danny King / October 25, 2011 Share 1 -- Where others saw only a downtown department store that had been abandoned for a mall in the St. Louis suburbs, Jim Holthouser recognized a diamond in the rough. It required more than four years of financing efforts and design work, but the century-old Laurel Building, former home of a Dillard's department store, reopened earlier this month as a mixed-use project anchored by an unlikely centerpiece: the 212-room Embassy Suites St. Louis -- Downtown. Today, Holthouser, the global head of Hilton's Embassy Suites and full-service brands division, sees his creation as a model for urban hotels that reclaim and preserve abandoned retail structures in an age of suburban malls and Walmarts. "These buildings really test your creativity," Holthouser said. "They push your thinking -- and sometimes your patience -- to the nth degree, but they're hugely rewarding once you pull it off." Moreover, the payoff can be well worth the effort. "These are just jewels of hotels," he said. Looking to garner higher room rates from urban locations, hotel owners are increasingly looking to abandoned department stores as potential rehabs. Among the advantages the buildings offer are central locations, good bones and period details. Developers are hoping that higher build-out costs stemming from preservation issues and the inability to cram a cookie-cutter design into existing structures are more than offset by higher room rates and, often, subsidies from local governments looking to add life and a higher tax base to their downtown areas. Among those who have jumped into the fray is David Mark Wyant, a Dallas-based developer whose family has built 10 midscale hotels under the Holiday Inn, Hampton Inn and Hilton Garden Inn badges. In December, Wyant will open his 166-room Saint Hotel in the 102-year-old Audubon Building on New Orleans' Canal Street. That building's bottom floor housed a Woolworth's for more than two decades. And in Louisville, Ky., a 250-room Embassy Suites is slated for the century-old Hilliard Lyons Center building, long the home of a Stewart's Department Store. That hotel is expected to open in 2013. "I've seen a lot of beautiful boutique hotels, and I'm trying to utilize the best of the best out there," said Wyant, who's also an American Airlines pilot. "There are challenges in dealing with the local historic and state preservation boards, but they're not insurmountable." Department store rehabs are the culmination of two concurrent trends: the efforts of even the most suburb-focused chains to move into urban locations, where they can charge more per room; and the disappearance of the traditional downtown department store. As the number of big-box retail stores such as Walmart and Target have proliferated over the past couple of decades, many downtown retail fixtures, due to a combination of parking constraints, changing demographics and declining sales, have either shrunk their presence, like Sears; moved many of their stores to shopping malls, like Dillard's; or vanished altogether, like the Broadway, May Co. or Woolworth's. In the meantime, hotel chains that are aiming for higher room rates and a unique guest experience are looking harder at downtown locations. A case in point is the 68-story development that will be New York's tallest hotel-only building when it opens in midtown Manhattan in 2013. That project will include a 378-room Courtyard by Marriott and a 261-room Residence Inn. Such projects aren't cheap, even if developed around an existing structure like a former department-store. Wyant, who paid about $6 million for the Audubon Building, is investing about $40 million in the upgrades, which included breaking through the first-floor ceiling to create a 22-foot-high, ground-floor public area. Holthouser did not disclose the St. Louis Embassy Suites' development costs, but he did say the project was "completely outside of the realm of a prototype." Still, the higher land and development costs can be justified by the promise of higher rates. Late October weekend rates for the downtown St. Louis Embassy Suites range from $169 to $284 a night, compared with $139 to $159 a night at the Embassy Suites near Lambert-St. Louis Airport. Determining how many old department stores are being converted to hotels is difficult because many of these buildings had multiple uses before their most recent reincarnation. In the U.S., there are currently under way seven so-called "change-in-use" projects in which a former bank, retail structure or office building is being reincarnated as a hotel, while another 14 are in the pipeline, according to Bruce Ford, senior vice president at Portsmouth, N.H.-based research firm Lodging Econometrics. "These projects are more speculative, and, in a down economic time, they tend to get shelved," said Ford, who added that the number of these types of projects under development bottomed out a couple of years ago and is up "but not dramatically." That said, Wyant and the developer of the downtown Embassy Suites in St. Louis, Amos Harris, appear to be picking up where a number of other hotel operators left off before the recession. Sage Hospitality in 2008 built the 331-room Nines hotel in Portland, Ore., in what had been the Meier & Frank department store building. That hotel is operated by Starwood Hotels & Resorts. In St. Louis, Harris is also including high-end luxury condominiums and ground-floor retail in the Laurel Building project. Wyant's Saint Hotel had previously been targeted as a possible Hilton before the economic downturn and the effects of Hurricane Katrina caused the prior owner to default on the property. It shares a wall with the 527-room Ritz-Carlton, New Orleans, which debuted in 2000 after the completion of a $250 million renovation to the 19th century buildings that had housed the Maison Blanche department store and Kress & Co. five-and-dime. "This is where customers want to be," Holthouser said of premier urban locations that once house department stores. "These are the kinds of locations that bring prestige to a brand." For hotel and hospitality news, follow Danny King on Twitter @dktravelweekly.