Adding some hotel space and apartments to Capitol Hill was an easy decision for Jon Coulter and his business partners Rod McClaskey and Terry Boyle.

In spite of the common perception of soaring rents and developers making money hand over fist, Coulter says they are running up against some softness in the market, at least in the higher-end range where they build.

“The pressure of the rents is downward,” Coulter said. “We’re testing the top of the food chain.”

Design review: 1818 Harvard Ave

And he’s expecting that downward pressure to keep up, with hundreds, if not thousands of new units coming online over the next few years.

“We’re not sure what 380 square feet will get us in Capitol Hill in three years when it’s done,” Coulter said.

McClaskey echoed that idea. While he doesn’t expect rents to starts coming down, they may stabilize, or not go up as quickly.

Partly as a hedge against that uncertainty, the group decided to enter a different, relatively untapped market in the neighborhood – hotels – with a project at 1818 Harvard Ave.

“It’s a harder business model, but it can also produce a greater cash flow if you have high occupancy,“ McClaskey said.

That plan, however, ran up against city regulations which seem to discourage hotels in the area, a 45-foot height cap. There’s other regulations which limit the overall density of hotels, but that bit was at least partly cancelled by the extra density afforded by proximity to the light rail station. If not for the height cap, Coulter said, the building may very well have gone all hotel.

Instead the project will have four stories of hotel on the bottom floors, with three floors of residential on top. The plan calls for 69 hotel rooms and 42 apartments, though Rod McClaskey, one of the partners developing the project, notes those numbers could change.

Those upper floors will be micro units, with sizes ranging from 380 to 425 square feet but they’ll be more fully featured than what most consider microhousing. Coulter said they’d never been too excited about going the microhousing route, because it makes running the place more complex.

“Just build nice efficiency units. It keeps it clean and it’s easy to maintain,” he said.

It’s unclear what impact the city regulations on affordable housing mandates will have on the project, but Coulter said they don’t intend to let it change their design. If they’re required to include affordable units, they’ll do so, but it would likely mean designating a couple units as affordable, without changing anything.

“It wouldn’t be any different or smaller,” Coulter said.

The hotel helps them check multiple boxes. Coulter notes that other than the Silver Cloud at Madison and Broadway, there’s not hotel space on Capitol Hill, so he thinks there’s a market for it. In particular, Coulter said they expect to have smaller rooms, with fewer amenities, at a correspondingly lower price point. The idea would be to cater to business travelers who might want to spend a couple nights in town near the neighborhood’s hotspots.

“People want to stay within easy walking distance of the action,” Coulter said.

The building will have 19 parking spaces, though McClaskey said they have yet to determine the mix of how may will be for tenants vs. hotel guests, though they hope most people will opt to use the nearby light rail station or ride sharing options.

“Our hope is to get as many people out of cars as we can,” he said.

Beyond that, the building is in a mixed-use area, and would be required to have some sort of commercial space on the ground floor. Rather than the Capitol Hill tradition of a craft cocktail/Asian fusion/pizza route, the hotel takes a different path: its lobby will count as the required commercial space.

Coulter notes that stretch of Harvard, with a relative dearth of foot traffic, makes a more traditional retailer challenging, so this ensures there won’t just be an empty storefront.

They also expect to run the hotel themselves, boutique-style, rather than outsourcing it to a larger company. McClaskey and another partner, Terry Boyle, met while working for Red Lion Inns, and they bring decades of experience in the industry to the project.

The business model for a hotel requires that the place be staffed all the time, so with a smaller place like this, the larger chains won’t have a high enough profit margin to be interested.

“Only a boutique can really do it, and do it well,” Coulter said.