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How Do You Build a NoMad Hotel in LA? R.D. Olson’s Bill Wilhelm Has the Answer

Bill Wilhelm has been a part of R.D. Olson Construction, a leading California general contracting firm, since 1994. Perhaps that’s why he considers his colleagues his second family.

Currently president of the business founded by Robert Olson in 1979, the Southern California native lives in Orange County with his high school sweetheart whom he married 31 years ago and his two children. “I can truly say that the R.D. Olson family means as much to me as my family,” Wilhelm, 54, told Commercial Observer. “The kind of projects that we associate with, 70 percent of our work is through existing relationships, repeat customers. When you have those kind of stats, you love what you’re doing.”

The firm, the construction arm of developer R.D. Olson, specializes in hotel and hospitality—which accounts for 60 percent of the firm’s volume—while also pursuing multifamily housing, country club and retail construction projects. Since 2000, the Olson companies have developed over $1 billion in hotel assets and hospitality projects with a client list that includes Marriott, Kimpton Hotel & Restaurant Group, UDR and Affirmed Housing Group. Based in Irvine, Calif., recent projects Wilhelm has worked on include the H Hotel, a 12-story 260,000-square-foot project located adjacent to the Los Angeles International Airport (LAX), the NoMad Los Angeles downtown, which opened earlier this year, and the redesigned Marriott Irvine Spectrum, the only full-service hotel in the Irvine Spectrum Center area. Annual revenues for R.D. Olson Construction have ranged from $225 million to $245 million over the last three years.

exterior final How Do You Build a NoMad Hotel in LA? R.D. Olsons Bill Wilhelm Has the Answer
The H Hotel Los Angeles, Curio Collection by Hilton. Photo: R.D. Olson

Wilhelm’s lengthy tenure has not been without conflict. During the city planning and review process for the redevelopment of a Jack in the Box the company has owned since 2014 into a 21-story hotel called Ivar Gardens in Hollywood in 2017, Wilhelm’s membership in Legatus, an anti-gay, anti-abortion Catholic business leader networking group, brought unwelcome attention. Wilhelm became the target of Unite Here Local 11, a powerful union that represents 23,000 hotel, airport and food service workers in California, which objected to the executive’s ties to the organization. Wilhelm announced in a letter following the union’s protest that he was resigning from Legatus, saying that “some of Legatus’ beliefs regarding sexual orientation and women’s rights do not represent my own,” LA Weekly reported. He told CO through a company spokeswoman that he left his role with Legatus because he didn’t have time to be an active member. (The R.D. Olson-helmed project was ultimately approved by the Los Angeles City Council in August 2017, with one council member saying the discrimination allegations against the contractor were not credible.)

Despite the controversy, R.D. Olson Construction was recognized among the top 20 medium-sized firms as one of the region’s, “Best Places to Work,” by the Orange County Business Journal, which Wilhelm attributes to the company’s entrepreneurial spirit, mixed-generation workforce and community and team engagement. Team events have centered around pro-bono work building homes for Habitat for Humanity, Cal Poly Pomona, Rady’s Children’s Hospital and the Ronald McDonald Corporation.

Olson spoke to CO about the evolution of the hospitality industry, including the rise in Airbnb and changing client expectations.

Commercial Observer: In terms of markets, your company works primarily in Los Angeles and Orange County, correct?

Bill Wilhelm: We’re licensed in 22 states. Today our focus is really the West Coast. Most of our work is in California and Hawaii, with work in California taking us from San Diego to Northern California. Our West Coast presence remains strong. It’s probably 95 percent of our work. However, we are geared up in preparation to start to go to back across the country in anticipation that the market is going to see some adjustments in the next year and a half.

What’s behind those adjustments?

We are seeing enough indications to tell us that in the next 18 months or so we’re going to see a change. We’re already seeing the change. We’re seeing stabilization. What’s driving that is the supply and the demand, world economics and the financial industry. We’re starting to see a little bit of a cap on the demand side even though you have more growth at the airport, you have the Olympics in 2028 and you have the football stadium. We’re going to see more of a controlled growth, versus a dead stop. It will slow the process down for the next couple of years.

Is that related to the Trump tax plan?

In the multi-unit world, yeah. We’re going to see single-family homes for sale potentially slow down because of [changes to] the mortgage write-off deduction. From my chair, that’s going to drive up or enhance the multi-unit industry, which has been on fire and maybe allow that multi-unit to go a bit longer because the single-family homes—which everyone says we still don’t have enough supply—you’re going to see a slowdown in the buying, you’re probably going to see housing prices a year or so out start to cap out or go down a tad.

You mentioned that the NoMad concept is the talk of the hospitality industry today. What is it about the model that is generating buzz?

Number one, it’s an adaptive reuse, which is a whole new market itself. It’s been there for a long time, but in the last five years adaptive reuse has come [more] into play. We have seen a lot of our work go from new construction ground-up to adaptive reuse for all the right reasons. With the NoMad property, here is a chance to go into a building that was built in the early 1900s. There is a storyline. There’s history there. There’s an architectural element that you’re going to capture, reinvent, revitalize, but [we will] also bring a whole new flair. The NoMad, which is part of a group out of New York, [Sydell Group]—they are the hottest thing since sliced butter in the hospitality circuit. They are pushing the envelope on the overall guest experience.

22 How Do You Build a NoMad Hotel in LA? R.D. Olsons Bill Wilhelm Has the Answer
NoMad Los Angeles Courtesy R.D. Olson

What asset class does your company focus on?

If you look at our hospitality, we’re not chasing the secondary-type market. We’re engaged in the market that is a higher-end project for a higher-end end-user in mainly a primary type market.  

How many employees do you have at the construction arm of the Olson company?

We have 125 employees. Of those 125 we have close to 35 who are field superintendents. We have operations staff and support staff within our building, which is anything from our accounting group to risk management. It’s a nimble-sized company.

What is the biggest challenge you face?

The biggest challenge in any industry is resources—quantity of resources, quality of resources, material availability. Resources are not only what we deal with here at R.D. Olson, but also our contractors, our designers, even city planners. When you look at the city agencies, they are all stretched pretty thin. A lot of people are going to retire in the next five to 10 years. You have aging industries across the board, which is a challenge with the issues we’re dealing with today. The largest percentage of our workforce is going to be the millennials.

Millennials tend to get a bad rap. Are there certain strengths that you see in this generation?

Oh yeah, I’m not one to give them a bad rap because we were all millennials ourselves within our own generational description. They are just a lot smarter than we ever were at that stage of our lives. They have a lot of great things to offer, just like the Gen Xers and the baby boomers have. Our baby boomers and Gen Xers here within R.D. Olson are really welcoming the millennials with open arms and vice versa. They have come together because each generation has been able to bring a unique offering to the table. My superintendents who are 70 years old, are some of the most tech-savvy superintendents you are going to find in the industry and that’s because millennials are investing their knowledge, their experience in them. My millennials are some of the best because my seasoned veterans are sharing with them their experiences on how to deal with certain situations.

What do millennials bring to your company specifically?

Tech, but it’s also the way they look at life. Their expectations. They want it now. Do I agree with all their expectations? No. But if you really step back and listen to what their expectations are and you have a conversation, they’re smart enough to listen to some reason today.

What are you doing to stay ahead of tech and construction trends?

bill wilhelm How Do You Build a NoMad Hotel in LA? R.D. Olsons Bill Wilhelm Has the Answer
Bill Wilhelm Courtesy R.D. Olson

We are updating every platform across company lines. We are updating our construction operations software, our accounting software. We are bringing in new technology that allows us to look at buildings three-dimensionally, to understand the building makeup, how these buildings function, how they operate.  All our superintendents work off iPads. Some of them still have blueprints on the job sites, but those are usually building permits that are required by city officials. We’re just now finishing an $80 million 15-story project here in Orange County and we don’t have blueprints aside from the permits. The entire team built this project off our ability to work online and communicate in a concentrated effort with all our consultants, all our contractors and within our own project team.

You are in the process of updating your operations systems.

A year-and-a-half ago I thought we were cutting edge. We were, but nowhere near where we could or needed to be. We made the commitment to literally go across company lines from accounting to business development, to field operations and are enhancing and updating every platform across the board.

What are the latest trends in hotel development? What are clients asking for?

We have seen a [demand for a] lifestyle experience for the last seven or eight years. When people stay in a hotel, they want a nice room, but they also want a public forum, an open area where they can be part of a community gathering. We’re seeing more and more of that. The social, community area is continuing to step up another notch. That can be anything from the quality of the material to the amenities that are provided. Social connection and interaction is probably the top runner right now in the hospitality industry, which also includes your restaurant facilities and what have you. That’s a market that’s on fire right now.

Is Airbnb having a major impact on the hotel and hospitality industry? (Cities across California have put limits on Airbnb, though, as Curbed LA reported on Feb. 8, in Los Angeles, where there are approximately 23,000 listings for short-term rentals, the L.A. City Council delayed a vote on rules on such arrangements.)

I think like everything else, it has taken a bite out of the hospitality industry because it’s another resource, another option for consumers to consider. It takes a percentage away, but when you look at the sheer numbers [in] the hospitality industry—the number of users that are traveling—we’ve seen a significant increase. So, if anything it’s keeping the hospitality industry a little more honest, a little more focused on the goal line, to not take things for granted, as much as we might have in the past. We must focus on the experience because if we don’t three, four, five years from now there might be a greater impact from Airbnb.

Have there been any injuries or deaths on your sites this year?

We did have one death on the job site, but it was non-job related. A gentleman was up on the roof deck in a safe area and he just happened to have a heart attack, which was a hereditary issue, based on what we found out.

Do you only use union labor?

We are nonsignatory to the union so we use the most qualified and competitive subcontractors that are out there.

Is your company facing a labor shortage?

There is a labor-resource issue in the construction industry and building in general. We have a shortage of qualified craftsmen, designers, even as I said earlier, a shortage of city [inspection] officials.

How have you dealt with rising costs on the large-scale multi-year projects you work on?

It’s been difficult. It’s delayed some projects. It has required us to think outside the box in terms of means and methods to offset some of those costs. It has driven the bottom-line cost of development and construction up. And that is only one part of it. If you look at overall development costs, land costs have gone up substantially, design costs have gone up substantially. For a developer that was going to build, say a Renaissance Inn today, to build that same property in the same city is probably 30 to 40 percent more than what he was going to pay seven years ago. But, on the flip side, look at what he is going to get for a nightly rate today compared to what he made back then.

What about construction costs?

Within the construction industry we have seen an increase over the past few years of close to 30 percent increase, most of which is in labor and some in subcontractor margin.

Today construction costs have plateaued. We’re going to see a couple of small increases, but I’m hoping to see a couple of small decreases or at least for it to stabilize itself, versus the last four years.

Where do you think the biggest opportunities in the contracting business are moving forward?

Every project, every state is different. If I just look at the state of California, Title 24 [The California Building Standards Code, also known as Title 24, serves as the basis for the design and construction of buildings in California. Composed of 12 parts, the regulations cover everything from electrical, plumbing and green building standards code], those are things that continue to throw challenges at us. How do you manage the ongoing code enhancements, the ongoing building requirements to meet the end user’s needs? That is one of the challenges of the industry. Construction, in general, outside of resources being a big issue, are the design parameters that are being driven by a lot of factors from code to owner to end-user expectation.

Source: commercial

Aspen’s St. Regis Will Become US’s First Public Single-Asset REIT

Stephane De Baets’ Elevated Returns, a New York-based asset management outfit, may be riding an express chairlift into the history books.

The firm, which acquired the St. Regis resort in Aspen, Colo., in 2010, won approval from the Securities and Exchange Commission late last month to spin off the property under the ownership of a newly formed real estate investment trust (REIT) called Aspen REIT. When it does—and after its New York Stock Exchange initial public offering later this month that aims to hawk 1.675 million shares at $20 each—the trust will become what De Baets said will be the first single-asset REIT to trade on an American exchange.

Elevated Returns plans to retain 51 percent of the shares, bringing equity investment in the property to $68.4 million. Those stakes combine in the capital stack with a $119.4 million mortgage to bring the St. Regis’ total valuation to $187.8 million.

The structure pioneers a novel configuration of real estate ownership, allowing anyone with a brokerage account to buy a piece of an individual commercial asset for no more than the price of a dinner entrée.

“It’s a democratization of the investment model,” De Baets said. “We’re enabling the man on the street to, point to point, invest into a particular asset and to enjoy 100 percent of the economic interest.”

The concept is not unheard of. In the mid-1980s, in an arcane, convoluted transaction that allowed the Rockefeller clan to skirt a tax liability for liquefying its real estate holdings, the family created a single-asset REIT assigned to collect interest on mortgages on Rockefeller Center in Midtown Manhattan.

And in 2013, an upstart called ETRE Financial was poised to zip several different commercial properties, in Boston, Washington, D.C., and Philadelphia, into discrete single-asset trusts available to shareholders to trade on the Nasdaq exchange.

Both of those endeavors careened toward the gutter. By the end of 1995, Rockefeller Center Properties was deeply distressed, suffocating under the layers of debt it had taken on to protect shareholders and buying back bonds that were set to convert into equity in the future.

And ETRE Financial fizzled before launch, postponing a series of IPOs in the wake of what analysts speculated was lackluster investor interest.

Michael Rotchford, who co-leads the capital markets group at Savills Studley, mused that concern in particular would be an obstacle for any single-asset trust to confront.

“Single-asset REITs for certain assets are a great idea, but I think that liquidity is going to be of great concern to individual investors,” Rotchford said.

When asked about concerns over the vibrancy of the proposed REIT’s secondary market, De Baets was upbeat, explaining that Aspen will employ a market-maker, Citadel Securities, to promote liquid trading in the stock.

“The market-maker is very incentivized to keep the market liquid,” he said. “If the first [single-asset REIT] is successful, there’ll be 20 of these.”

The hotel, at 315 East Dean Street in the ritzy Rocky Mountains town, is nothing to shake a stick at. Two blocks from the lift lines for the Aspen Mountain ski resort (also known by its former moniker, Ajax), the St. Regis boasts five restaurants—including one that serves dishes from chefs Eric Ripert and Mario Batali—a full-service spa and even butlers available to meet guests on the tarmac at Aspen-Pitkin County Airport to carry their luggage.

De Baets may also have an ace up his sleeve in the form of deep relationships with Asian investors. In addition to his role at Elevated Returns, the Belgium native also serves as a managing director for OptAsia, a specialty investment bank with offices in Bangkok. In that capacity, De Baets lived in Thailand for 20 years and said he believes that an emerging investor class in China and throughout the eastern part of the continent is hungry for recognizable American properties in which to park their cash.

When considering mainstream U.S. REIT opportunities, “most of my investors in Asia say, ‘I don’t know, this REIT has 500 different assets,’ “ De Baets said, “ ‘It’s complicated for me to understand if it’s a good deal.’ “

With Aspen REIT, “you only have one set of numbers,” he added. “The underlying value of the asset is easy to understand.”

The pitch to foreign retail investors will be bolstered by the tax advantages that real estate investment trusts enjoy abroad.

“For foreign pension plans that are now recognized [by the U.S. government], they would be exempt from taxes on the dividends,” explained Kenneth Weissenberg, a partner at New York accounting firm EisnerAmper. “And a nonexempt holder can sell his stock in the REIT and not be subject to” the Foreign Investment in Real Property Tax Act, a law that charges income tax to foreigners who make money in American real estate.

Incentives for foreign REIT investors were further strengthened by 2015’s PATH Act, which lowered the rate of dividend withholding for foreign REIT investors to 21 percent from 30 percent.

But how well Aspen REIT will serve owners as an investment vehicle remains unknown. Trophy resort hotels have always been difficult to find investment comparisons for, analysts say, because their fortunes are so closely tied to local conditions. But single-asset REITs lack any precedent at all, leaving De Baets to play a guessing game for what the financing market will bear.

“We don’t know that the general public will be happy with the yield,” the asset manager said. “We’ve priced this offering with an entry yield that is so attractive that we know the asset will be in demand. Where will it settle once it’s trading? No one knows.”

Still, Elevated Returns thinks that the ski town’s prestige and the strength of the St. Regis brand will boost the REIT’s market with investors content to dampen their expectations for return.

“I would say that the difference between the sexy asset and the non-sexy asset would be the yield compression,” De Baets said.

The paperwork that Aspen REIT has filed with the SEC in advance of its initial offering of shares grants an intriguing glimpse into the finances of a luxury hotel adjacent to a destination ski area.

Occupancy is sharply seasonal. During the ski season—roughly from late December through the first few weeks of April—demand soars, and guests rent 80 to 95 percent of the St. Regis’ 179 rooms. The picture is similar over the summer, from June through August, when travelers mob the town for hiking and rafting, as well as a yearly two-month classical music festival.

Revenue follows a similarly lumpy pattern. In December 2016—the most recent ski season for which data are available—the average price for a night at the St. Regis peaked at $1,665. But in the October offseason two months earlier, rooms could be had for less than a quarter of that price.

Still, the St. Regis was able to charge consistently higher rates than its competitors throughout Colorado, its SEC filings show. In 2016, the hotel raked in just shy of $29 million in room revenues, or about 45 percent of the REIT’s planned IPO valuation.
On the whole, revenue from the hotel has grown 14 percent since 2015, supporting the REIT’s pledge to pay out a 5.8 percent annual dividend.

Given REITs’ surging popularity—May 2017 data from the National Association of Real Estate Investment Trusts showed that daily trading in the sector was up roughly 150 percent over the preceding decade—analysts say the time is ripe for new innovations in the vehicles.

“You have growing popularity of the real estate space as the primary alternative investment,” said David Blatt, the chief executive of New York-based CapStack partners. “Additionally, people are looking to diversity away from public equities and bonds to have noncorrelated assets. That, in turn, has really brought a lot of people off the sidelines.

“I think [the single-asset REIT concept] is sector agnostic, but I do think that you’re going to acclimate people far better utilizing something that has a brand,” Blatt said. “Coming to market saying you’ve got a fantastically well-located warehouse complex—I’m sorry, but I fell asleep after you said ‘warehouse.’ ”

On the other hand, with a market cap, at $68.4 million, only about a 10th as large as its self-identified competitors, Aspen REIT might appear to have an uphill battle winning investor attention amidst the clamor.

On that front, the hotel’s branding could be crucial to its success.

In exchange for using the St. Regis moniker and outsourcing its day-to-day operations to the brand, Elevated Returns pays Marriott, which owns St. Regis, an annual fee based on a percentage of the Aspen hotel’s operating revenue—$500,000 at a minimum.

The Bethesda, Md.-based lodging company did not respond to a request for comment.

“[St. Regis’] sales network is very strong and sophisticated,” De Baets said, citing the company’s “no-blackout, highly rewarding loyalty program. That’s something that has been very powerful for properties like ours.”

Source: commercial

AJ Capital Partners Nabs $44M Loan to Buy and Rebrand Rhode Island Hotel

ACORE Capital has lent AJ Capital Partners $44.3 million to acquire and refurbish the historic Providence Biltmore hotel in Providence, R.I., Commercial Observer can first report.

The five-year, floating-rate mortgage loan was brokered by JLL. Representatives from JLL were not immediately available for comment.

After construction, during which the hotel will remain open, AJ Capital will rebrand the property as part of its Graduate Hotels chain, christening the building the Graduate Providence. The Graduate brand runs chic lodgings in college towns across the country. Existing offshoots include hotels in Madison, Wis., Berkeley, Calif. and Charlottesville, Va.

Built in 1922, the 18-story Biltmore is the 10th-tallest building in Providence. The hotel has 294 guestrooms and over 18,000 square feet of meeting space. Its address at 11 Dorrance Street places the Biltmore a few blocks from the Rhode Island Convention Center and the Dunkin’ Donuts Center, a concert arena.

Along College Street, pedestrian bridges allow guests to walk across the Providence River to Brown University and the Rhode Island School of Design.

Stuart Silberberg, an ACORE managing director, said that a variety of the venerable building’s attributes attracted his firm to the deal.

“The Biltmore is right downtown—so it’s walkable to a bunch of things—it’s iconic, and it’s tall, so there are good views,” Silberberg explained. “The building is older, but it has a fair amount of charm. The idea for the Graduate [rebranding] is to bring out that charm.”

The property will join a nearby Marriott as the second Providence-area hotel that ACORE has financed. Silberberg, who grew up in Boston, said that hotel lending is a good fit for ACORE’s strategy of medium-term, floating-rate lending.

“Every five to seven years…[hotels] generally need an overhaul and refresh,” Silberberg said. “You’re refacing the hotel in a much more consistent way than you would an office building.” With hotels, he said, “you have to spend real money.”

AJ Capital did not respond to requests for comment.

Source: commercial

Columbia Property Trust Pays $514M for Chelsea Office Building Trio

Columbia Property Trust has put down $514 million to buy three fully leased office buildings in Chelsea from New York REIT, the buyer announced.

Two of the buildings, which amount to over 280,000 square feet, share an address at 245-249 West 17th Street between Seventh and Eighth Avenues. The third, a 12-story, 166,000-square-foot structure, stands a block south at 218 West 18th Street.

Columbia funded the transaction with a combination of cash and a line of credit, a spokesman for the buyer told Commercial Observer, declining to be more specific.

Earlier this year, Columbia sold a U.S. portfolio of major buildings that included the Key Center in Cleveland—which comprises a 57-story office tower and a Marriott hotel—and the 27-story Five Houston Center in Houston. Those sales brought in more than $500 million, according to press releases on Columbia’s website, and the company intended to reinvest the proceeds in the short term.

“Our acquisition of these prime Midtown South buildings allows us to expand within New York,” Nelson Mills, Columbia’s president and chief executive officer, said in a statement. “We view these acquisitions, along with our recent share repurchases, as an excellent use of the capital raised from our non-core dispositions.”

%name Columbia Property Trust Pays $514M for Chelsea Office Building Trio
218 West 18th Street Photo: Alexander Severin

The West 17th Street complex has been home to Twitter’s New York City headquarters since 2014, and Room & Board, a furniture seller, leases the ground-floor retail space as its showroom. Red Bull, a beverage company, rents much of the building on West 18th Street for its New York offices.

New York REIT purchased the West 17th Street building in 2014 for $335 million, property records indicate. It picked up the nearby tower on 18th Street in 2013 for $112 million.

A representative for New York REIT declined to comment.

Source: commercial