Executive Summary

In the context of hospitality real estate, sustainability refers to the practice of developing, operating, and managing hospitality establishments in a way that minimizes negative environmental, social, and economic impacts while maximizing long-term positive outcomes. Sustainability involves a commitment to responsible and ethical practices that ensure the well-being of the planet, local communities, and future generations. It also aims to maintain profitability and provide guests with exceptional experiences. Some key aspects of sustainability in hospitality real estate include environmental, social, economic, and cultural sustainability, as well as maximizing guest experiences while remaining compliant with regulatory industry standards and certifications, all of which will be covered in this paper.

Introduction

Sustainability gained importance in the hospitality real estate industry due to a widespread increase in environmental awareness. Consumers, particularly those in younger generations, seek places that provide quality guest experiences while minimizing their environmental impact. However, sustainability is not only a benefit for consumers; establishments that prioritize sustainability have the opportunity to reduce costs, build a strong brand reputation, improve public relations and marketing efforts, boost employee engagement, and gain a competitive advantage over competitors.

KEY ASPECTS OF SUSTAINABILITY

1. Environmental Sustainability

In today's world, a heightened awareness of environmental changes has ignited a widespread demand for sustainable practices across all industries. Environmental sustainability is not merely a marketing catchphrase; it's a critical ethos that places a resounding emphasis on curtailing the environmental footprint left by hospitality properties. This complex commitment includes conscientious efforts to curtail energy and water consumption, minimize waste generation, and progress towards the use of renewable energy sources and sustainable building materials.

Energy Efficiency

In this era of technological advancement, the march towards energy efficiency has revolutionized even the simplest of common household items. Traditional incandescent light bulbs have largely been replaced by LED light bulbs, which offer a brighter light and use less electricity, saving costs and reducing energy use. Additionally, the increasingly common integration of automatic light sensors further assists energy savings by turning off lights when rooms are unoccupied and turning them back on when motion is detected.

Water Conservation

Water, an invaluable and finite resource, is often the star of various conservation efforts. In regions where water is scarce, such as arid deserts, water conservation takes on a particularly high importance. Fortunately, there are lots of water-saving techniques available, even for expansive resorts and hotels. The installation of water-saving showerheads has emerged as a method of water conservation, significantly mitigating overall water consumption. Programs affording guests the choice to determine the frequency of towel laundering encourage prolonged towel use, diminishing the need for frequent washes. Additionally, water recycling initiatives empower establishments to embrace the reuse of treated water for diverse purposes, including nurturing lush landscapes.

Waste Reduction

The canvas of waste reduction extends beyond conservation to encompass conscientious waste management. The adoption of wall-mounted soap dispensers, which has reduced the use of individual single-use plastic bottles, stands as a shining example. This not only reduces the burden on landfills but also befits establishments with cost-effective savings derived from the elimination of single-use bottle purchases. For venues with in-house dining establishments, the practice of composting or donating surplus food to local charities embodies responsible waste management. Furthermore, investment in durable, long-lasting kitchen tools curtails the frequency of item replacement, delivering a cost-efficient approach to running the business.

2. Social Sustainability

Ethical Labor Practices

At the apex of social sustainability lies the imperative to ensure that employees are treated with fairness and ethical consideration, a foundational principle that should be at the core of a company’s values. This commitment extends to ensuring that employees receive a liveable wage, enjoy proper working conditions that prioritize their well-being, and are supported in both their mental and physical health. Moreover, when businesses engage in outsourcing, it is important to source labor and goods from regions where employees are treated fairly and ethically as well.

Guest Engagement

Social sustainability, when intertwined with guest engagement initiatives, creates a holistic approach that resonates with conscientious travelers. Initiatives such as reducing towel and linen washing not only conserve resources but also resonate with guests who value eco-conscious practices. The provision of “Do Not Disturb" signs printed with information about the company's ongoing efforts to reduce its carbon footprint not only demonstrates care for guest comfort but also conveys a profound commitment to environmental stewardship. This alignment of guest experience with sustainable practices reinforces the message that the establishment is equally dedicated to the well-being of both its guests and the planet.

Post-Pandemic Landscape

The shifts brought about by the COVID-19 pandemic have transformed industries worldwide, bringing in a new era of operational norms. Companies that prioritize cleanliness and hygiene demonstrate high care for social sustainability by assuring guests of their safety. The sanitation of spaces between guest stays and the presentation of a clean and orderly environment underscore a commitment to safeguarding guest well-being. Furthermore, recognizing the diversity of guest preferences, the option to hang a “Do Not Disturb" sign signifies respect for those who prefer minimal interaction with staff, contributing to a personalized and comfortable guest experience.

3. Economic Sustainability

Design and Construction

Sustainable construction, when executed effectively, not only yields immediate benefits but also plays a pivotal role in securing long-term economic sustainability. Buildings crafted with sustainability at their core exhibit a remarkable capacity to demand less maintenance and fewer repairs over their operational lifetimes. The integration of products designed for enduring use further fortifies the foundation of economic sustainability. These products, built to withstand the test of time, contribute to substantial cost savings over the years by obviating the need for recurrent replacements. Moreover, when such resilient items finally reach the end of their life cycle, they can be subjected to disassembly, enabling the retrieval of valuable components for recycling and reuse, fostering a sustainable, circular approach to resource utilization.

Operations

Investing in the sustainability of one's workforce constitutes a pillar of long-term economic sustainability. Programs that prioritize high employee retention, nurturing the longevity of employee tenure, facilitate substantial cost savings by reducing recurrent training expenditures. Retained employees, enriched with valuable skills and institutional knowledge, empower businesses to channel resources towards the preservation and growth of their existing human capital rather than engaging in constant employee acquisition. By doing so, businesses build a reservoir of expertise that furthers their competitiveness and contributes to long-term economic stability.

Economic sustainability in the realm of hospitality real estate encompasses the holistic safeguarding of the financial viability of properties and portfolios over time. This entails adopting practices that not only maximize short-term profitability but also extend consideration to the economic welfare of all stakeholders, including investors, employees, and the broader community. Sustainable financial practices encompass a wide array of strategies, ranging from prudent cost-saving measures and the judicious management of resources to strategic investments in eco-friendly technologies. These multifaceted approaches collectively underpin a robust economic sustainability framework that aligns profitability with responsible stewardship of resources and equitable economic well-being for all stakeholders.

Finance

At the end of the day, the goal of all for-profit companies is to generate a profit. Part of economic sustainability extends beyond the customers and to the stakeholders. Ensuring proper fund management, whether that be through internal services or third-party consulting agencies, help keep the finances of a company afloat and promote longevity.

Use of financial models can be particularly helpful for promoting the financial wellbeing and longevity of a company. Third party consulting companies can be a key tool for ensuring strong financial sustainability, as they provide more expert information with no bias. Third party financial analysts can be beneficial for companies as they have a wealth of knowledge for the entire market and not just a specific market (for example, understanding office, retail, and hospitality real estate as opposed to just hospitality).

Another financial benefit of having a third party consultant is the cost saved on having an in-house financial analyst. Third party consultants typically charge a flat monthly rate for their services; on the other hand, having an in-house analyst requires time and money for training, payroll, and turnover.

4. Cultural Sustainability

Cultural sustainability is a multifaceted commitment that goes beyond mere preservation; it represents a dedication to the perpetual flourishing of local cultures, traditions, and heritage. In the realm of the hospitality industry, properties that embrace cultural sustainability take on the role of stewards, preserving and promoting the unique cultural fabric intricately woven into the geographical landscapes they inhabit. This comprehensive endeavor extends its reach to various dimensions, including architectural design, culinary offerings, artistic displays, and immersive activities. All these elements converge to offer guests a truly authentic and enriching experience that fosters a deep connection with the local culture.

The significance of cultural sustainability becomes even more pronounced in regions where the historical narratives of indigenous communities have faced the looming threat of extinction or gradual fading into obscurity over time. This predicament often plagues areas where indigenous populations have dwindled and become marginalized. In such contexts, the mandate of cultural sensitivity comes to the forefront, encompassing a profound understanding and reverence for native belief systems, historical legacies, culinary traditions, and artistic expressions. Acknowledging and celebrating these intrinsic cultural treasures serves as a means of not only enhancing the guest experience but also contributing to the vital preservation and revitalization of endangered cultural heritages. In essence, embracing cultural sustainability transcends the realm of business and tourism; it becomes a noble endeavor that champions the safeguarding of cultural diversity and the preservation of humanity's rich tapestry of traditions and heritage.

5. Barriers to Sustainability

Sustainability initiatives in hospitality real estate encounter various obstacles. Firstly, there's the substantial initial cost associated with investments in energy-efficient technologies, green building materials, and eco-friendly amenities. Uncertainty about the timeline for return on investment can deter some stakeholders from prioritizing sustainability over short-term gains. Operational disruptions during the transition to sustainable practices, like property renovations, can pose challenges. Limited awareness and expertise in sustainable practices among industry stakeholders may hinder adoption. Concerns about potential guest resistance to changes, such as reduced amenities or price increases, can also impede progress. Complex and region-specific regulatory requirements, along with a lack of standardized metrics for measuring sustainability, add to the complexity. Ensuring supply chain sustainability, considering cultural and regional differences, and managing competitive pressures further complicate the sustainability landscape. Despite these barriers, successful integration of sustainability often involves education, clear goal-setting, collaboration, and a steadfast commitment to long-term sustainability.

6. Benefits of Sustainability

Maximizing the Guest Experience

Maximizing the guest experience within the realm of hospitality extends far beyond the traditional scope of environmental stewardship. It evolves into a comprehensive commitment that revolves around the holistic well-being of guests, demonstrating an establishment's unwavering dedication to guest satisfaction and the broader promotion of sustainable practices.

This commitment first materializes through the provision of eco-friendly amenities, offering guests not only comfort but also the assurance that their stay aligns with responsible environmental practices. These amenities serve as tangible reminders of the establishment's steadfast commitment to eco-conscious hospitality, enhancing the guest experience by allowing them to participate in a shared sustainability journey.

Moreover, the guest experience is elevated through the creation of opportunities for guests to actively engage in sustainable activities. Whether it involves participating in wildlife conservation initiatives, joining community outreach programs, or exploring scenic nature trails, these experiences foster a profound connection between guests and the environment. They offer a sense of purpose and fulfillment that goes beyond traditional vacation experiences, allowing guests to leave with a deeper appreciation for the world around them.

Education also plays a pivotal role in shaping the guest experience, with hospitality properties assuming the role of eco-educators. By transparently sharing their sustainability efforts and initiatives, these establishments raise awareness among guests about the pressing environmental challenges facing our planet. This not only deepens the guest's appreciation for responsible practices but also motivates them to incorporate sustainability into their own lives, extending the positive impact beyond the duration of their stay.

Regulatory and Certification Compliance

Sustainability initiatives within the realm of hospitality real estate seamlessly align with established industry standards and certifications, such as LEED (Leadership in Energy and Environmental Design), Green Key, or EarthCheck. The pursuit of compliance with these well-regarded standards serves as a testament to the establishment's dedication to sustainability, reinforcing its commitment to responsible practices.

Furthermore, achieving and maintaining certification represents a heightened level of dedication, and can act as a model for environmentally conscious guests actively seeking eco-friendly accommodations. When guests choose a certified establishment, they can be confident that their stay not only meets but surpasses the industry's stringent sustainability benchmarks. This assurance empowers guests to actively contribute to a more responsible and sustainable world, aligning their personal values with their travel choices.

Competitive Benefits

A hospitality establishment that places sustainability at its core can find itself benefiting from multiple competitive advantages that set it apart in the industry. One of the most prominent benefits is the ability to differentiate itself from competitors, providing a unique selling point that appeals to a growing segment of travelers who prioritize eco-friendly practices. These environmentally conscious guests are not only more likely to choose your property but are also often willing to pay a premium for accommodations that align with their values. This niche market can significantly boost your occupancy rates and revenue, giving your establishment a clear advantage.

Furthermore, a sustainability focus helps shape a positive brand image. Guests view your establishment as socially responsible and environmentally aware, which can lead to positive word-of-mouth recommendations and encourage repeat business. Over time, this goodwill can translate into higher guest loyalty and a stronger market presence.

Operational benefits also come into play, as sustainable practices often lead to cost savings. Investments in energy-efficient appliances, reduced water usage, and waste reduction measures can lower operational costs, thereby contributing to higher profit margins. Additionally, some regions offer incentives and tax benefits for businesses that implement sustainability initiatives, further enhancing the financial advantages of going green.

Employee engagement is another notable advantage. A sustainability-focused establishment is likely to attract and retain environmentally conscious employees who are passionate about contributing to a greener future. Engaged employees can provide better service, which ultimately leads to improved guest satisfaction and positive reviews.

Enhanced guest experiences are a hallmark of sustainability initiatives. From eco-friendly amenities to green activities and organic cuisine, sustainable practices provide guests with unique and memorable experiences that go beyond traditional offerings. These experiences not only garner positive feedback but also foster guest loyalty and repeat visits.

Moreover, a sustainability focus allows your establishment to meet corporate social responsibility (CSR) goals. Many corporations prefer to book accommodations for their employees and events at sustainable establishments to align with their CSR objectives. This can lead to corporate bookings and increased revenue streams.

Additionally, sustainability often involves community engagement through partnerships, employment opportunities, and community outreach programs. This not only enhances your establishment's reputation but also fosters goodwill with local residents, which can be especially beneficial in building strong, supportive relationships within the community.

7. Conclusion

By embracing sustainability, your establishment positions itself for long-term success. As sustainability becomes increasingly important globally, focusing on sustainable practices anticipates changing guest preferences and regulatory requirements, allowing your business to adapt and thrive in a dynamic and eco-conscious market. As sustainability spans a wide scope, finding ways to implement sustainable practices, whether it be for the environment, social and cultural purposes, or to maintain economic viability are all beneficial in the long term.

Before founding 3E in 2016, Managing Member Eric Bergin was Director at Rockpoint Group, where he was responsible for for the Finance Group, as well as acquisitions, asset management, and investor reporting activities.