The District hotel market is hot. Statista.com states that 9.58 million people in the U.S. visited Washington, DC overnight within a period of 12 months and that, in 2014, Union Station was the fourth most-visited tourist attraction in the world, with 32.9 million visitors. Here are four areas where developers, asset managers or private equity funds can look within the hospitality industry and seek to deploy a high risk-return strategy by renovating and repositioning existing hotel assets:

  1. PENTHOUSE GUEST ROOMS: Rooms were not permitted in penthouses until a few years ago but, luckily, that has changed. Now, guest rooms CAN be located in penthouses. While there are some restrictions on penthouse heights and setbacks, those concerns are often minimal when there is an opportunity for fantastic views of the District’s iconic landmarks.
  2. ROOFTOP POOLS: Recent changes to the District’s penthouse regulations made it even easier to have a rooftop pool or other rooftop amenities. Want to rebrand and offer more amenities without losing your current number of keys or ballroom space? Look to the penthouse where, even if you have maxed out on floor-to-area ratio, the zoning regulations allow an extra 0.4 above the permitted maximum. Also, it is even possible to locate a pool, a spa or a restaurant on top of the penthouse, thereby providing even better views.
  3. ARTS SPACE: Some hotels are including spaces for art and artists in their lobby. This is a national trend that is strongly supported by the District.
  4. GROUND-FLOOR RETAIL/ RESTAURANT SPACE: Having high-end restaurants and bars in a hotel is not new. However, the ability to retrofit some older hotels in residential zones to add in these amenities is new. While older hotels are not expressly permitted to create new uses such as high-end restaurants and bars, it is possible to obtain the necessary zoning relief, and approvals have been issued in the past.

There are other strategies and zoning benefits for the hotel or inn market – the above four represent some of the most prevalent for investors acquiring commercial real estate assets. Many investors will mix and match the strategies to maximize value add to a deal.