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5/4/2010
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Downtown Hotel Development Emerging Opportunities for Small & Medium Size Cities
2010 Main Streets Conference, May 2010, Oklahoma City
Presented by:Bill Ryan and Bill WayDowntownHospitalityAdvisors.com 1
Discussion Points
1. Trends in the Hotel Industry
2. Why Downtown Lodging Makes Sense
3. Downtown Hotel Development Examples
4. Challenges to Downtown Hotel Development
5. Analyzing Market Potential in Your Downtown
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1. Trends in the Hotel Industry
How the Lodging Product has Changed
Current Travel Trends by Market Segment
Lodging Industry Current Performance and Outlook
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The Past:
Highway/Suburban Lodging Orientation
Rapid growth beginning in the 1950’s – Interstate system, increase auto use
Suburbanization – housing was followed by retail, office and lodging development
Cookie‐cutter concepts introduced with standard amenities, designs, operations, management, reservations and advertising
Franchising fueled the growth of these chains
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Howard Johnsonhttp://www.youtube.com/watch?v=IpFpTfnYlRg&feature=related
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Future Trends:
More “Select Service” and Profitable Lodging Concepts
Select Service examples include Courtyard by Marriott and Hilton Garden Inn
Limited Service examples include Hampton Inn and Fairfield Inn.
Future Trends:
Urban “Trendy” Brands
Alternative to the plain vanilla hotel:
Guest Rooms‐ urban‐inspired, loft‐like rooms.
Hotel Lobby‐ lounge areas for working and socializing, desks and comfortable seating
Hotel Features‐ Smaller than full service hotels (typically 100 to 200 Rooms)
6Marriott Courtyard: http://www.youtube.com/watch?v=_gpAyOc8J‐8NYLO Plano: http://www.youtube.com/watch?v=u58dxvnUGwI
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Future Trends:
Lobby as a “Third Place”
A new connection with the surrounding downtown
Upscale and innovative
Visitor information center
Gateway to community
Gathering place for guests to socialize and relax
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Marriott Courtyard’s new lobby: http://www.youtube.com/watch?v=_gpAyOc8J‐8http://www.marriott.com/courtyard/travel.mi#/lobby
Future Trends:
8Hilton Home2 Suites: http://www.youtube.com/watch?v=KIeJyhRQD8c
Home Away From Home Feel
Downtowns are fitting places for some of the newest lifestyle hotel concepts that provide guests with a “residential feel” and a unique lodging experience in each destination.
Future Trends:
Branding Independent Hotels
Hotel companies are finding new ways to bring more existing hotels under franchise agreements. Rebranding is usually cheaper than new construction.
These companies offer marketing programs and loyal customer base.
Major hotel chains are involved:Marriott (Autograph Collection)Hilton (Waldorf‐Astoria Collection)Choice (Ascend Collection)IHG – Hotel Indigo 9
The Grand Bohemian Hotel in Asheville, N.C., is among the independent hotels in Marriott's Autograph group.
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Future Trends:
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Small Boutique Hotels and Inns (Adaptive Reuse)
Many existing downtown buildings offer:
original character and architecture
Spaces to create unique rooms and suites
Can command higher room rates as they are destinations
28‐unit Retro Suites in downtown Chatham, Ontario combines historic elements of the downtown district with modern amenities.
Business Travel
J.W. Marriott, Jr., chairman and chief executive officer of Marriott International, said, corporate room nights in North America rose 16 percent in the first quarter as business demand strengthened dramatically.
Trends in 2010 point to slow recovery in business travel. Same‐day business trips, coach‐class air, upscale lodging at mid‐scale prices, free breakfast, and free high speed Internet access are important.Source: Ypartnership/U.S. Travel Association, October 2009 travelhorizons(TM)
Current Travel Trends by Market Segment
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Meetings Travel
Meeting planners face tight budgets and low attendance during the economic slump. Some of the changes they are making include shorter conventions and going to less‐expensive cities.
Companies, associations and non‐profit groups' spending on meetings, conferences and trade shows constitutes about 12% of total travel spending. And last year, spending fell by 15% compared with 2008, according to the U.S. Travel Association.
Source: Meetings Cut Back to Bare Minimum, April 13, 2010, USA Today
Current Travel Trends by Market Segment
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Leisure Travel
Examples include: Visiting Friends & RelativesTourists (visiting local attractions)Wedding, reunions, social and sporting eventsPass through on highway
Trends in 2010: A recent survey revealed that many leisure travelers are now more inclined to stay in less expensive hotels, drive rather than fly, and look for deals on the Internet. Perceived "value" is key.Source: Ypartnership/U.S. Travel Association, October 2009 travelhorizons(TM)
Current Travel Trends by Market Segment
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Lodging Industry Current Performance and Outlook
U.S. Pipeline Top 10 Markets by Number of Rooms in Construction:
US Hotel Occupancy Trends
Sources: Smith Travel Research Global (“STR”) (2004 to 2009); PricewaterhouseCoopers (2010). 2010 data is as of January 25, 2010.
Lodging Industry Current Performance and Outlook
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US Hotel Average Room Rate Trends
Sources: Smith Travel Research Global (“STR”) (2004 to 2009); PricewaterhouseCoopers (2010). 2010 data is as of January 25, 2010.
Lodging Industry Current Performance and Outlook
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US Hotel Revenue Per Available Room Trends
Sources: Smith Travel Research Global (“STR”) (2004 to 2009); PricewaterhouseCoopers (2010). 2010 data is as of January 25, 2010. RevPAR, which is calculated by multiplying average room rate by the average occupancy rate.
Lodging Industry Current Performance and Outlook
$52.95$57.51
$62.03$65.67 $64.47
$53.71 $52.90
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
2004 2005 2006 2007 2008 2009 2010E
2. Why Downtown Lodging Makes Sense
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We can help developers and community leaders (planners, tourism officials, others) understand the benefits of concentrating hospitality establishments downtown
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Why Downtowns Lodging Makes Sense
Proximity to Demand Generators
In many communities, the downtown area is geographically closer to sources of lodging and dining demand than suburban locations.
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Sense of Place
Downtowns often have a character and sense of place that cannot be replicated by suburban, highway‐oriented locations where many hotels and restaurants have traditionally located.
Why Downtowns Lodging Makes Sense
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Sustainable and Green Development
With growing concerns over the economy, energy and the environment, downtowns are becoming more attractive locations for hospitality development. Downtown locations are often logical places for infill development.
Why Downtowns Lodging Makes Sense
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Adaptive Reuse of Buildings
Downtowns are positioned to reuse historic and unique buildings that can become “one‐of‐a‐kind” lodging, dining and visitors experiences.
Why Downtowns Lodging Makes Sense
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Mixed‐Use Environment
Downtown tourism services create synergy with other downtown uses. They provide a steady stream of visitors that patronize other nearby retail, services and entertainment establishments day and night.
Why Downtowns Lodging Makes Sense
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Critical Mass
Clusters of hospitality businesses create a critical mass of lodging and dining choices. These businesses often help each other by creating locations with numerous alternatives for the consumer.
Why Downtowns Lodging Makes Sense
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Alternative Dining Places
Downtowns offer spaces and places for dining and entertainment simply not available at the regional mall. Establishments ranging from coffee shops to bistros can line streets and sidewalks, courtyards, riverfronts and other uniquely urban settings.
Why Downtowns Lodging Makes Sense
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Experiential Retail
Unlike the national brands found in major shopping centers, downtown retail is unique and has the potential to become a destination by offering stores that entertain, celebrate local artists and educate.
Why Downtowns Lodging Makes Sense
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3. Downtown Hotel Development Examples
Types:
Renovations, Adaptive Reuse and New Construction
Chains and Independents
Limited Service to luxury
Local Ownership to Outside Investment
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Sheboygan, WI ‐ GrandStay
Completion Date: 2009
Residential Suites with fully‐equipped kitchens
71‐unit hotel
located downtown just blocks from Lake Michigan
Downtown Hotel Examples
GrandStay is an extended stay hotel chain with locations throughout the Midwest and beyond
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Ithaca, NY ‐ Hilton Garden Inn
104 rooms on upper floors
Part of mixed‐use project with office and retail space below
Benefits from the Ithaca Commons, a successful pedestrian mall with shops, galleries, restaurants.
Additional 700 car garage build nearby
Very strong business and group market on weekdays and leisure travel on weekends
Downtown Hotel Examples
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Cornell University served as catalyst with an interest in invigorating the downtown core
Appleton, WI ‐ Copperleaf Hotel
CopperLeaf Hotel, opened in January of 2004 with 73 rooms
32 suites feature hot tubs, electric fireplace, 32 inch HD television and I‐Pod docks
The Black & Tan Grille offers upscale dining and features contemporary American cuisine
The hotel spa offers a full range of relaxation services and beauty regimens
Downtown Hotel Examples
The CopperLeaf is located in downtown Appleton near the Fox Cities Performing Arts Center and close to Lawrence University
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De Pere, WI ‐ Kress Inn
46 rooms
Located near St. Norbert College
First floor conference room for 20 with videoconferencing and audio/visual equipment
Adjacent to the F.K. Bemis International Conference Center
Downtown Hotel Examples
Kress Inn is a member of Choice Hotel’s Ascend Collection.
Holland, MI‐ City Flats
56 uniquely designed rooms
Environmentally friendly custom décor and furniture. Provides cork flooring and hypoallergenic bamboo linens
iPod® Docking Clock/Radio, IP Color Touch Screen Phones
CityVu; Bistro, a unique rooftop dining
Downtown Hotel Examples
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Hotel developed by Charter House Holdings and opened in 2008
Beloit, WI ‐ Beloit Inn
54 keys/38 suites
Boutique hotel
Restaurant and meeting space
Condo ownership
Owned by local investors and community leaders
City Participated with TIF, land, streetscaping, parking, and cleaned up of riverbank
Downtown Hotel Examples
Developed and managed by Inn Development and Management (IDM Group, LLC)
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Wausau, WI ‐ Jefferson Street Inn
100 units (26 suites)
Designed to fit needs of community
Significant meeting space
Condo ownership
City worked with management and consulting firm to develop property
Hotel has notably changed and enhanced downtown retail
Downtown Hotel Examples
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Development consulting and management by Inn Development and Management (IDM Group, LLC)
Dubuque, IA ‐ Hotel Julien Dubuque
$33M renovation/restoration
133 rooms
Restaurant and 15,000 SF of meeting space
Current building built in 1914. Hotel on this site since 1859
High level of service
City participate with TIF. State and Federal Tax Credits, New Market Tax Credits, and Energy Credits
Downtown Hotel Examples
Development consulting and management by Inn Development and Management (IDM Group, LLC)35
4. Downtown Hotel Development Challenges
Downtown vs. Edge‐of‐Town DevelopmentAdaptive Reuse IssuesDemonstrating Downtown’s Return on Investment
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1. Land costs are typically higher in downtown areas. Also, more than one property may need to be assembled for a downtown project.
2. Because they have a history of use, downtown properties often present complex title issues.
3. Downtown projects often require a complexity of permits and may pose conflicts with requirements and historic preservation guidelines.
4. Redeveloping a downtown building often involves a change of use, which triggers additional review under local zoning (setbacks or parking).
5. Downtown construction often involves demolition of existing structures. With a higher chance of environmental hazards or other complications.
6. Downtown building projects often bring complex construction challenges. It will cost 25‐50% more to build downtown.
7. Suburban buildings can be bigger and more easily meet the standardized requirements of a chain. Parking is more restricted downtown.
Source: Vermont Forum on Sprawl 37
Downtown vs. Edge‐of‐Town Development
Adaptive Reuse Issues
1. Narrow rectangular floor slabs with column spacing able to accommodate rooms 12 to 15 feet wide are needed.
2. Office buildings built in the 1960’s and 70’s have large square floor plates that do not allow light in the middle of the building.
3. Fitting the guest room module into existing window modules may prove challenging.
4. Floor to ceiling heights will impact guest room ambiance and HVAC requirements.
5. The building must be able to incorporate public space such as lobbies, meeting rooms, and public dinning. Other space requirements include spa, pool, fitness and storage and mechanical.
Downtown Hotel Suburban HotelRooms 120 120Occupancy (stabilized) 64% 60%Average Room Rate (stabilized) 100.00$ 80.00$ RevPar (Stabilized) 64.00$ 48.00$
Room Revenue 2,803,200$ 2,102,400$ Total Revenue (1.2 times Room Rev) 3,363,840$ 2,522,880$ House Profit (from Operations @ 38%) 1,278,259$ 958,694$ Income After Fixed Charges (@30%) 1,009,152$ 756,864$
Land and Improvements (per room) 15,000$ 7,000$ Construction (per room) 70,000$ 64,000$ Furn, Fixture and Equip (per room) 13,000$ 13,000$ Soft costs (per room) 20,000$ 16,000$ Total Investment (per room) 118,000$ 100,000$ Total Investment Hotel 14,160,000$ 12,000,000$
Loan to Value 70% 70%Equity % 30% 30%Equity $ 4,248,000$ 3,600,000$ Return on Investment (IAFC/Equity) 24% 21%Payback Period years 4.2 4.8
Demonstrating Return on Investment
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5. Analyzing Market Potential in Your Downtown
“Show Me the Numbers”
Help lodging industry developers and potential investors recognize untapped market opportunities related to a downtown location.
Demonstrate market potential through projections of occupancy and average room rate
Demonstrate financial feasibility through financial projections
Sample Financing Methods
Understand Return‐on‐Investment Considerations
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http://www.uwex.edu/CES/cced/downtowns/dma/15.cfm41
Downtown Market Analysis Toolbox – Univ. of Wisc.‐ Extension
Tools to Assess Market Demand and Supply
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Downtown Market Analysis Toolbox – Univ. of Wisc.‐ Extension
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Assess Market Area Business and Tourism Activity
Examine the following market area characteristics and include all information relevant to a new property in your community. Use several years' data to identify trends.
Business and Economic Characteristics
Tourism and Recreation Characteristics
Transportation Factors
Lodging Market Analysis
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Assess Lodging Demand
Based on local business and tourism activity, you should identify what market segments of overnight guests visit your community. These market segments typically fall into four categories:
Business
Leisure
Group, and
Other
Lodging Market Analysis
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Assess Lodging Competition (Supply)
The operating performance of existing local competition is a key indicator of market potential. Conduct interviews with area hotel operators to determine:
Occupancy*
Average Daily Room Rate*
Strengths, weaknesses and competitive position related to location, facility and service
*Smith Travel Research lodging reports can be customized for your geographic area. They can provides key performance measures, in aggregate, on your market area.
Lodging Market Analysis
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Assess Your Proposed Location
Analyze your location using the factors listed below. Be sure to consider other location criteria that may be applicable.
Description of Immediate Area
Proximity to Demand Generators
Traffic Volume
Accessibility
Other Issues ‐ Site size and social, political and environmental concerns related to downtown
Lodging Market Analysis
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Refining Your Hotel Concept
Affiliation ‐ independent or chain
Product Category ‐ limited or full service
Room Type and Number ‐ standard rooms and suites
Amenities and Facilities ‐ restaurant and lounge, function facilities, recreation (pool and fitness center).
Market Segments to be Served ‐ business, leisure, group and other categories.
Expected Price Range ‐ peak and slow periods
Lodging Market Analysis
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http://www.uwex.edu/CES/cced/economies/tourism/index.cfm
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Tourism Business Development Toolbox – Univ. of Wisc.‐ Extension
Tools to Assess Financial Feasibility
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Tourism Business Development Toolbox – Univ. of Wisc.‐ Extension
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Historic Rule‐of‐Thumb Used in Industry ‐ For each $1,000 of construction cost per room, there should be $1 in average room rate. This works under some conditions – typically larger hotels achieving satisfactory occupancy levels.
Return on Investment Analysis
Cost Per Room Mid‐Market Economy
Land 25,500 13,800
Building 68,700 48,800
Soft Costs 11,400 4,500
FF&E 10,000 8,500
Pre‐Opening 4,100 3,000
Total 96,100 63,900
Typical Development Costs per Room:
Source: HVS 2009
City Grants‐ A downtown Des Moines hotel project receives $2.4 million in City. The City will provide annual aid of $240,000 for 10 years as part of the renovation of a downtown landmark building for use as 95‐room Hyatt Place hotel.
Municipal Loans‐ A long‐stalled hotel development plan in Menomonee Falls, WI resumes construction work thanks to $17.7 million in bond financing from the Village. That amount, will be repaid to the village by an investment group that plans to build a 135‐room Radisson Hotel.
Recovery Zone Bonds‐ The Williamsport, PA Industrial Development Authority approves a tax‐exempt recovery zone facility bond to bring a new Marriott Hotel downtown. The bonds come out of the American Recovery and Reinvestment Act.
Sample Financing Methods
Many financing methods need to be considered ranging from TIF to state and federal tax credits.
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Summary Take‐Away Points
1. Trends in the Hotel Industry ‐ More select service, trendy, residential and boutique concepts are possible in our downtowns. Travel has begun to pickup again. Development will follow.
2. Why Downtown Lodging Makes Sense – Developers and community leaders need to recognize the reasons why downtowns have potential as a place for hospitality and tourism.
3. Downtown Hotel Development Examples – Downtown hotel development can take many forms: adaptive reuse, new construction, chains, independents, limited service, boutiques.
4. Challenges to Downtown Hotel Development – There are added challenges building downtown rather then on the edge of town.
5. Analyzing Market Potential in Your Downtown – Be able to “show me the numbers.” Assemble information to support realistic projections of occupancy, average rate and cash flow.
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For More Information:
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Bill Ryan (608) 334‐7735E‐mail: [email protected]
Bill Way(612) 961‐8276Email: [email protected]
Website: www.downtownhospitalityadvisors.com