1. 5/4/2010
Downtown Hotel Development
Emerging Opportunities for Small & Medium Size Cities
2010 Main Streets Conference, May 2010, Oklahoma City
Presented by:
Bill Ryan and Bill Way
DowntownHospitalityAdvisors.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
Howard Johnson
http://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.
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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)
Marriott Courtyard: http://www.youtube.com/watch?v=_gpAyOc8J‐8
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NYLO 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
Marriott Courtyard’s new lobby:
http://www.youtube.com/watch?v=_gpAyOc8J‐8
http://www.marriott.com/courtyard/travel.mi#/lobby
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Future Trends:
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.
Hilton Home2 Suites: http://www.youtube.com/watch?v=KIeJyhRQD8c
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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. The Grand Bohemian Hotel in Asheville,
N.C., is among the independent hotels in
Major hotel chains are involved: Marriott's Autograph group.
Marriott (Autograph Collection)
Hilton (Waldorf‐Astoria Collection)
Choice (Ascend Collection)
IHG – Hotel Indigo 9
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4. 5/4/2010
Future Trends:
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 28‐unit Retro Suites in downtown Chatham,
rates as they are destinations Ontario combines historic elements of the
downtown district with modern amenities.
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Current Travel Trends by Market Segment
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)
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Current Travel Trends by Market Segment
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
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Current Travel Trends by Market Segment
Leisure Travel
Examples include:
Visiting Friends & Relatives
Tourists (visiting local attractions)
Wedding, reunions, social and sporting events
Pass 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)
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Lodging Industry Current Performance and Outlook
U.S. Pipeline Top 10 Markets by Number of Rooms in Construction:
Lodging Industry Current Performance and Outlook
US Hotel Occupancy Trends
Sources: Smith Travel Research Global (“STR”) (2004 to 2009); PricewaterhouseCoopers (2010). 2010 data is as of
January 25, 2010.
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Lodging Industry Current Performance and Outlook
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. 16
Lodging Industry Current Performance and Outlook
US Hotel Revenue Per Available Room Trends
$70.00 $65.67 $64.47
$62.03
$60.00 $57.51
$52.95 $53.71 $52.90
$50.00
$40.00
$30.00
$20.00
$10.00
$0.00
2004 2005 2006 2007 2008 2009 2010E
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.
2. Why Downtown Lodging Makes Sense
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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Why Downtowns Lodging Makes Sense
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.
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Why Downtowns Lodging Makes Sense
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.
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8. 5/4/2010
Why Downtowns Lodging Makes Sense
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.
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Why Downtowns Lodging Makes Sense
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.
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Why Downtowns Lodging Makes Sense
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.
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Why Downtowns Lodging Makes Sense
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.
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Why Downtowns Lodging Makes Sense
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.
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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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Downtown Hotel Examples
Sheboygan, WI ‐ GrandStay
Completion Date: 2009
Residential Suites with fully‐
equipped kitchens
71‐unit hotel
located downtown just blocks
from Lake Michigan
GrandStay is an extended stay hotel
chain with locations throughout the
Midwest and beyond
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Downtown Hotel Examples
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
Cornell University served as catalyst
Very strong business and group with an interest in invigorating the
market on weekdays and leisure downtown core
travel on weekends 29
Downtown Hotel Examples
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 CopperLeaf is located in
The hotel spa offers a full range of downtown Appleton near the Fox
Cities Performing Arts Center and
relaxation services and beauty close to Lawrence University
regimens
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Downtown Hotel Examples
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 Kress Inn is a member of Choice
Center Hotel’s Ascend Collection.
Downtown Hotel Examples
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 Hotel developed by Charter House
Holdings and opened in 2008
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Downtown Hotel Examples
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,
Developed and managed by Inn
streetscaping, parking, and Development and Management (IDM
cleaned up of riverbank Group, LLC)
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Downtown Hotel Examples
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 Development consulting and
management by Inn Development and
34 Management (IDM Group, LLC)
Downtown Hotel Examples
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
Development consulting and
Tax Credits, and Energy Credits management by Inn Development and
35 Management (IDM Group, LLC)
4. Downtown Hotel Development Challenges
Downtown vs. Edge‐of‐Town Development
Adaptive Reuse Issues
Demonstrating Downtown’s Return on Investment
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Downtown vs. Edge‐of‐Town Development
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
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.
Demonstrating Return on Investment
Downtown Hotel Suburban Hotel
Rooms 120 120
Occupancy (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
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14. 5/4/2010
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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Downtown Market Analysis Toolbox – Univ. of Wisc.‐ Extension
Tools to Assess Market Demand and Supply
http://www.uwex.edu/CES/cced/downtowns/dma/15.cfm
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Downtown Market Analysis Toolbox – Univ. of Wisc.‐ Extension
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Lodging Market Analysis
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
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Lodging Market Analysis
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
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Lodging Market Analysis
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.
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Lodging Market Analysis
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
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Lodging Market Analysis
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
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Tourism Business Development Toolbox – Univ. of Wisc.‐ Extension
Tools to Assess Financial Feasibility
http://www.uwex.edu/CES/cced/economies/tourism/index.cfm
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Tourism Business Development Toolbox – Univ. of Wisc.‐ Extension
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Return on Investment Analysis
Typical Development Costs per Room:
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
Source: HVS 2009
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.
Sample Financing Methods
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. Many financing
methods need to
be considered
Recovery Zone Bonds‐ The Williamsport, PA Industrial ranging from TIF to
Development Authority approves a tax‐exempt recovery zone state and federal
facility bond to bring a new Marriott Hotel downtown. The bonds tax credits.
come out of the American Recovery and Reinvestment Act.
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18. 5/4/2010
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:
Bill Ryan
(608) 334‐7735
E‐mail: info@downtownhospitalityadvisors.com
Bill Way
(612) 961‐8276
Email: billway2222@sbcglobal.net
Website: www.downtownhospitalityadvisors.com
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