By Jack Stubbs
“Extended-stay hotels are a great business model in a market that can support them, and Menlo Park’s market can,” Thomas E. Callahan, senior managing director and national hotel practice leader for PKF Consulting USA. On April 30th 2015, Sand Hill Property Company completed construction and received final approvals from the city of Menlo Park for its 555 Glenwood Avenue project, the redevelopment of a senior citizens retirement home into a limited-service, business-oriented hotel with 138 rooms.[contextly_sidebar id=”ZfOGZzG6eJsiPGYuLy76MERZJqTYP7Or”]Completed construction of the project, however, has been a long time in the works. In early March of 2013, Sand Hill Property Company’s proposal was initially viewed by the city’s Planning Commission. On March 26th 2013, the Menlo Park City Council unanimously approved the developer’s proposal for the project with a slight modification to one of the conditions of approval. Sand Hill is currently conducting employee training, and a formal grand opening ceremony is expected to occur later this summer.
The redevelopment of the 2.3-acre approximately 114,000 square foot site, where formerly stood a retirement home, is viable largely due to the rising land values throughout Menlo Park, according to Jim Cogan, Economic Development Manager for the city. “I don’t know if it’s a trend, as far as the reuse of the senior facility. But the facility was definitely winding down and some of the residents had to be relocated. It’s definitely a symbol of the upward pressure on land values that we’re seeing, and the strong demands for hotels and office space in the peninsula,” Cogan said.
The limited availability of land in Menlo Park—and throughout the Bay Area Peninsula—has forced the hotel industry, among others, to compensate for this land shortage. “The unfortunate side of the fiscalization of land use is that cities compete for high tax-generating uses,” Cogan said. From a financial standpoint, hotels like the Marriott Residence Inn are becoming an increasingly viable option for developers.
“In Menlo Park, the combination of limited land and really high land values means that a hotel definitely has that type of revenue-generation potential. Hotels are great opportunity to generate the foot traffic in the town to enhance the business community,” Callahan said. The expanding network of hotels in Menlo Park not only supports and enhances the business community specifically: hotels are also beneficial for the surrounding market generally, according to Callahan.
“[The project] is a great addition to the local market, it’ll be highly successful but won’t have an impact on other hotels because the market is extremely strong,” he said. More specifically, residence inns are very reliable business models. “The project is a hotel in a market that needs more hotel rooms. It’s an extended-stay hotel so generally, most people stay more than two nights, ideally 5 or 6 nights, which is an outstanding business model,” Callahan added.
Benefits of the extended-stay hotel include that residents stay for longer, operating costs are lower, and room rates are higher. Long-term stays are becoming an increasingly desirable option for Bay Area residents as well. There’s a significant market especially on the Peninsula for longer-term stays,” Callahan added.
However, even though Sand Hill Development’s recent project certainly serves as a positive business model for the surrounding community, it is not necessarily the beginning of a larger pattern, according to Callahan. “It’s a good product for the market, but it isn’t part of a trend,” he said.