Nearly one-third of a Poydras Street office building will be converted into a hotel next year in a $120 million project that reflects the weak demand for office space in the Central Business District and the possibilities for adaptive reuse of such spaces.
Now vacant, floors seven through 14 of 1250 Poydras, a 24-story Class A office building near Loyola Avenue, will become a Hyatt House Hotel next year, Robert Hand, president of Louisiana Commercial Realty LLC, announced Friday. Hand’s company negotiated the deal.
Waypoint NOLA LLC is now leasing the space and will be responsible for the redevelopment.
The office building, erected in 1978 and once known as the Mobil Oil Building, currently houses several federal agencies and other companies.
The space on floors 11, 12 and 13 has been vacant since August 2010, when ENI Petroleum moved its employees to Houston. The other floors were vacant prior to the ENI move.
The Hyatt House is Hyatt’s all-suite, extended-stay hotel brand. The properties are typically located in the suburbs, Hyatt Regency New Orleans General Manager Michael Smith said. But this one, a 194-room facility, will be just blocks away from the Mercedes-Benz Superdome and will be connected to the adjacent, larger Hyatt Regency. It is expected to open in late 2015, Hand said.
The conversion will be an unusual one for a downtown office building. Bruce Sossaman, leasing director at Corporate Realty, said he isn’t aware of another Class A office building in the city that has added a hotel while also retaining several floors of offices.
“It makes sense because you don’t have those large tenants looking for space in the market downtown at this time,” Sossaman said. “If it’s done right, it can become a really good amenity for the balance of the building.”
Hand said his company considered a residential use for the vacant floors but decided that a hotel that could be joined with the Hyatt Regency would be a better bet. He said he sees the change as trading out the offices of what had been the city’s leading industry — oil and gas — for the offices of the current top industry, tourism.
“Since New Orleans is driven now by restaurants and hotels, it’s more feasible now for the space to be used as a hotel versus office space,” Hand said. “In the commercial real estate industry, we call that adaptive reuse. It just makes economic sense to do this, but it is out-of-the-box thinking.”
Those kinds of ideas are necessary in a sluggish market, Hand said. His firm has been trying since last year, for example, to find a tenant for the same building’s vacant, 19,000-square-foot 20th floor. Full-floor spaces, formerly occupied by single companies, particularly oil firms, are becoming harder and harder to lease. Fewer companies operating in New Orleans need a full floor of space, and landlords are often reluctant to divide the floors because of the expense of reconfiguring the design.
About 1 million of the 10 million square feet of office space in downtown New Orleans is vacant and for lease, Hand said, citing a study done by his company. About half of that vacant space consists of full floors, he said.
“There is an oversupply of full-floor office space, and there aren’t that many large companies coming in to lease full floors,” Hand said. “So you have an oversupply and a smaller demand.”
The 1250 Poydras building conversion could introduce a way around that dilemma for other building owners, Hand said.
“What you’ll see is landlords moving their tenants around so that they can create adjacent (vacant) floors so that they can make this happen in their buildings,” he said.
The new Hyatt House will operate alone but in tandem with the Hyatt Regency. The properties will have separate entrances and staffs but will be connected by a bridge. Smith will oversee both locations, though the Hyatt House will have its own general manager.
In addition to regular bookings, he said, the smaller hotel will be used for overflow when the Hyatt Regency hosts large conventions or events.
“It basically gives us the elasticity to go from a 1,200-room hotel to a 1,400-room hotel,” Smith said.
Smith said the property also should be able to stand on its own by attracting patients and the families of patients who are in town seeking medical services at the new Veterans Affairs and University Medical Center hospitals.
“We envision multiple impacts,” he said. “It’s going to be a spectacular project because it has four or five different layers of complexity to make sure it’s going to be successful.”