One on One: 21c Museum Hotels President Craig Greenburg

By Mark Green

The first 21c Museum Hotel opened in 2006 in rehabilitated former bourbon and tobacco warehouses on downtown Louisville’s West Main Street. Exhibits by living artists, along with good service, drew immediate notice. Condé Nast Traveler magazine readers voted 21c Museum Hotel Louisville the top hotel in the world in the 2009 and 2010. 21c Cincinnati has also achieved the distinction.

Mark Green: How did 21c come up with its business plan?

Craig Greenberg: The founders of our company, Steve Wilson and Laura Lee Brown, are avid contemporary art collec­tors. They are also passionate about urban revitalization to help prevent urban sprawl. Both grew up on farms and believe by revitalizing urban areas you can help prevent suburban sprawl. They wanted to do a project in their hometown to help revitalize an area of Louisville that was in need over 10 years ago – the West Main Street historic district on the west­ern side of downtown Louisville. And so off we went to develop a boutique hotel and great restaurant around a contempo­rary art museum that would showcase their collection of living artists, that would feature rotating curated shows of contem­porary art, and that would be open to the public free of charge, 24/7, 365 days a year. The goal was to provide an opportu­nity for people to have a unique contem­porary art experience and to help revitalize downtown Louisville. That is how 21c Museum Hotels got started. There was never any thought of doing more than one 21c when we first opened 10 years ago this month.

MG: Was making money part of the plan?

CG: We certainly wanted to make money; we thought we could. There were a lot of doubters, though. People thought a bou­tique hotel in Louisville focused around contemporary art was not a winning busi­ness plan, nor was this the right location for a hotel. But we have, fortunately, proven otherwise with our performance over the past decade.

MG: Is it a requirement that a 21c proj­ect must utilize an existing historic downtown structure?

CG: No. We have five 21c Museum Hotels open and two others under con­struction. Of those projects, one is com­pletely new construction: In Bentonville, Ark., we’ve built new con­struction from the ground up. The oth­ers all have rehabilitated historic buildings. We are open to developing both, but we wouldn’t tear down an old building to build something new

MG: After the Louisville home base, other 21c Museum hotels are going into midsize, middle American cities – Cin­cinnati; Bentonville; Durham, N.C.; Oklahoma City; Lexington; Nashville – rather than large cities with big arts communities. What is behind this expansion strategy?

CG: We have primarily reacted to opportunities that have come our way. Folks have reached out to us after hav­ing visited or heard about 21c and wanted us in their hometown and pre­sented an opportunity they think would work for us. We have said no to a lot of opportunities. The ones we’ve taken were really unique opportunities where we felt that 21c could not only be suc­cessful but help revitalize the urban areas or a particular neighborhood. We are looking at cities across the country, both large and small. Nashville will be our largest market when we open there about a year from now. We’re looking at larger cities as well for opportunities.

MG: How similar or out of the ordinary is 21c from a “typical” hotel operation?

CG: There’s a lot that makes a 21c unique, starting with our contemporary art and architecture, but the most important rea­son guests come back is the hospitality. Our team is made up of great people from the communities in which we build who really want to take great care of our guests, whether they’re hotel guests, eating at the restaurant, or just coming to look at the art. The authentic hospitality our team exudes is a secret to our success. That said, we certainly focus on having very comfort­able beds, warm showers, great Wi-Fi and very good bourbon and wonderful food, but the service in particular stands out beyond just the great art.

MG: How do 21c’s occupancy rates compare to industry averages?

CG: We look at both our average daily (room) rate and our hotel occupancies on a market-by-market basis. We look at not just how the overall market is doing but how our competitors’ sets of hotels within that market are doing, because there’s a wide array of types of hotels in each market. Travelers are creatures of habit and it takes awhile for people to learn about you, but in every one of our markets in which we’ve been open for a few years our occupancy rate is at or above our competitive sets in each city. We have the market-leading average daily rate in all of our markets.

We reach out to guests after they stay to get feedback to help us improve all of scores are industry leading, in the high 90s across the range of categories.

MG: Does business at 21c properties rise and fall along with the hotel/hospi­tality sector in general, or are you in a distinct niche?

CG: We are impacted by local and national events and changes in the econ­omy, but so far we have not been signifi­cantly impacted. In the late 2000s, when the hotel sector took a very serious hit during the recession, 21c Louisville con­tinued to do very well. Since then the hotel market across the country has grown year over year. You’ll have to ask this question again in 10 years and we can look back. There will be challenges, but we’re focused on being poised for success regardless of market conditions.

MG: What business and/or economic forces most drive your activity levels?

CG: We have a very wide range of guests. We have guests who are coming into town to do business; people com­ing for conventions or leisure activities; and a sizable group are coming to our properties to see our art, dine in our restaurants, and really just experience a 21c Museum Hotel. We not only attract people already coming to the city but help attract new visitors to each one of the communities we’re in.

MG: How large a chain might 21c become?

CG: Our focus now is on continuing to develop unique, successful properties, and we’ll see where this journey takes us. We are very focused on growing, but each of our properties is unique and one-of-a-kind; we want them all to have the same energy and the same quality of art displayed, the same strength of a hospitable team. We want to continue growing. We’re focused on operational excellence and growth.

MG: Who decides what art is appropri­ate and “good enough” for 21c, and what is the acquisition process?

CG: Our founders, Steve and Laura Lee, have a large and growing contem­porary art collection. They remain avid art collectors, travel around the world to meet artists and go to art fairs to acquire new contemporary art. They, along with our chief curator, Alice Stites, curate the shows we display at each one of our properties and rotate through our prop­erties. We also borrow a lot of art from museums, from other collectors, from galleries and artists themselves, to put together very strong contemporary art exhibitions in our public spaces.

MG: To provide perspective on 21c art, what is an example exhibition?

CG: A lot of the art at 21c focuses on very current events and issues. All of the artists we display are living artists, so it truly is art of the moment. We touch on political, social, economic, environmental, sexual topics in many of our exhibitions. Right now in Louisville there is a show of one artist named Al Farrow, and his work focuses on the relationship between reli­gion and violence. His works of art are very intricate, detailed models of houses of worship, across various religions, that are all made out of ammunition and weapons. It’s a really powerful exhibition that gets you thinking.

MG: How does incorporating art add to the cost of your properties? Is the cost offset in some way?

CG: There’s a two-part answer to that question. First, each property has some permanent art that’s included in the development cost of the project. In Lex­ington, for example, you’ll see a won­derful sculpture on the corner of Main and Upper Street called “Totally in Love,” two twisted light posts, as if they’d just been twisted together after a storm. That is a permanent piece of art that was part of the project. Most of the art displayed in all of the sites is curated by our team and rotated and provided by our parent company. Each our locations pays our parent company management and art services fees for managing the hotel and for providing and rotating the art, just as other hotels pay similar fees to Marriott or Hilton, and they get certain things for being affiliated with those brands. When a property is a 21c, one of the things we provide as the brand is the art that’s displayed and rotated.

MG: Are the individual properties owned by the company, or are they franchises?

CG: There are no franchises. Our company owns at least a portion of all of our projects. Some we own all of; we have local partners in many of our properties.

MG: How does 21c come up with a budget for art acquisition and display?

CG: I’m not prepared with details about our art budget, but much of the art we display at 21c is created by emerging artists from around the world that Steve, Laura Lee and Alice meet in their travels. We’re not focused on acquiring art just because of an artist’s name or because of their popularity at the auction houses. There’s not an art budget for each property. We buy the art centrally through the brand and then provide it to the properties.

MG: What is the role for the presence of art in the workplace that is applicable to other business sectors?

CG: We believe art stimulates interesting thoughts, provokes conversation, challenges people to see things in new ways, all of which promotes creativity and engagement. Many companies like to have business events at 21c because of that environment. And when their employees or customers and clients gather to have a meeting or a seminar or a social event in a contemporary art museum, as opposed to a more traditional event space, interesting things come out of that environment. So we believe art can be a powerful presence in the workplace, not just in static museums.

MG: In the case of the recently opened 21c Lexington, there was a period of roughly two years from its announcement until visible construction work commenced. Was that typical?

CG: Every property is different. We certainly had some challenges with the development of our project in Lexington. It’s a wonderful, historic building, but it also posed structural and space planning challenges, so that one took a little bit longer than we would have liked. Each project has its own unique schedule, depending on the condition of the building and other factors.

MG: How complicated is it to assemble financing for a 21c project?

CG: It’s not easy. We have greater success now than we did when no one knew what 21c was, and people thought we were all crazy. Now that we have a track record of success in many markets, it is easier, but it’s certainly not easy. It is challenging because of the cost of the projects, the uniqueness of our product. And often, like in Lexington, we’re going into a market where our type of hotel is untested. We are pushing the boundaries of what the market has historically seen. That makes it challenging, but that’s also what makes it exciting. So we have relied on a lot of public-private partnerships to make our projects happen, and that’s been a critical component of many of our projects.

MG: What is the price range on your projects so far?

CG: They have ranged, in total development costs, from $30 million to $55 million each.

MG: Can you describe a typical finance stack for a 21c project?

CG: Every one of our projects includes traditional construction loans and traditional equity investments. After that, the other sources of capital vary. We have used state and federal historic tax credits, and state and federal market tax credits that have provided some of the additional capital. We have used various public loan programs. We’ve also used tax increment financing or tax refund programs to help make our projects a reality. In Lexington, the city provided a $1 million loan, and then we borrowed money from a federal HUD loan pro-gram. In Cincinnati, a local nonprofit redevelopment company provided us with a loan. So it varies.

MG: How effective are today’s historic redevelopment incentive programs at making projects financially realistic?

CG: State and federal historic tax credit programs are critical to encouraging redevelopment of historic properties. Without them, I don’t think you would see as much occur. The federal program has been stable for many years; it’s a 20 percent tax credit. State programs vary. In Kentucky, there are different historic tax credit programs depending on what type of building you have.

MG: Do historic tax credits apply only to construction costs or to all costs of a project?

CG: Mostly construction costs. There’s a technical term called qualified rehabilitation expenditures.

MG: What types of historic buildings are good candidates for redevelopment for 21c and which are not?

CG: We have restored everything from Art Deco bank skyscrapers built around the turn of the century to an old Model T Ford manufacturing facility in Oklahoma City that will open up later this year. So we have redeveloped a lot of different kinds of historic buildings. Each one of them poses unique challenges, but at the same time each poses unique opportunities to create a one-of a-kind hospitality experience for our guests. So we welcome the challenges that different properties pose. You have to have an open mind and not be constrained by the way things have been done in your industry or the way you think things “should be done.” For example, all hotel rooms need windows; however, when you have buildings like we have in Louisville and in Oklahoma City with a very large footprint, we’ve needed to create interior light wells so we can get enough rooms in the building. At the other extreme, Lexington is a very tall and narrow building, and you can only get six or seven rooms per floor, which is not the most efficient model for a hotel. But we figured out a way to make it work. Regardless of your industry, I encourage people to embrace the uniqueness of the buildings and not use the challenges of a historic rehab as reasons to not pursue a project.

MG: Similar to how 21c’s historic redevelopment policy is an anti-sprawl tool, is the policy of exhibiting contemporary art a tool specifically aimed at helping living artists?

CG: We seek to be very active in every one of our 21c communities. We seek to get very involved in the local arts community, to promote the work of local artists as well as local arts organizations. So, for example, in several of our projects, including our hotel in Lexington, in the elevator lobby of each guest room floor we display local artwork that has undergone a juried evaluation process. Similarly, we work with local arts organizations in our communities and give them the opportunity to use our spaces for their cultural programming activities So we are very focused on supporting
local artists and arts organizations in each of our communities.

MG: Are there any specific areas or forms of contemporary art that cur­rently are especially vibrant and ener­getic creatively?

CG: We have works of art across many media, from traditional photographs and paintings to audio works, to video works, to sculpture and also interactive works as well, performance art and interactive art. In Louisville, for exam­ple, in our elevator lobby we’ve had a piece there since we opened called “Text Rain,” which has falling letters that people can play with and see a pro­jection of their own image on the screen as they catch and play with falling let­ters. In Cincinnati, we have a great interactive piece of art where you’re walking through these shapes, and as you walk, your shadow moves the image. In our Lexington bathrooms, there’s a really fun interactive artwork incorpo­rated into the bathroom mirrors, the public bathroom mirrors. And so we don’t take ourselves that seriously, and want people to have an easy, accessible experience to engage with contempo­rary art. And so interactive art and other unique, new forms of media often help break down the barriers that people tra­ditionally associate with viewing art.

MG: Are there different contractors for each project?

CG: Yes. A lot of it is local in nature, so we’ve worked with a lot of different groups at all of our projects. Some of the design professionals and consul­tants we have used on many of our proj­ects; Deborah Burke Partners, based in New York City, has been the design architect on all of our projects. But in terms of the actual contractors and sub­contractors, those have been different for each property.

MG: What are some of the general eco­nomic business metrics 21c watches as you manage your business?

CG: We’re focused on long-term eco­nomic growth and viability of the com­munities that we’re in. What are the engines of growth? What are the indus­tries that are active and make people want to come to those communities for either business or for new jobs? We look at what events occur in the communities each year, whether it’s regular conven­tions or whether it’s events like the Ken­tucky Derby in Louisville or Duke’s graduation weekend in Durham, or Keeneland races in Lexington. What recurrent events happen in each of our cities that bring people in, and what is the likelihood new events are started? For example, in Louisville 10 years ago or more, no one had heard of Forecas­tle Festival, and now that’s one of our best weekends of the year. So, are new events likely to come that bring people to those cities?

MG: Any areas that we haven’t touched on, that you’d like to address?

CG: Ten years ago, 21c didn’t exist. Now we have five hotels open, two more under construction and more under development. We have nearly 800 employees. Our corporate offices include 35 employees who oversee cor­porate operations and the management of the properties; the rest of the employ­ees are in each one of our properties. We’re thrilled that we have the opportu­nity to build a growing national business based in Kentucky. It’s a really good place for us, and we care passionately about our state and are excited to con­tinue to build the business based here.