Author Archives: pinnacleadv
March 1, 2013 6:20 pm
Comments Off on Manhattan Lodging Market: Why ADR Growth is Lagging Behind the U.S. Average Written by: Jonathan Jaeger
The U.S Lodging Industry posted strong increases in all major performance indices during 2012. Most hotels across the country experienced rising revenues and profits, some even surpassing levels achieved prior to the 2008/2009 recession. New York City, specifically the Manhattan Lodging Market, is regarded as one of the top markets in the country and one that attracts exceptionally strong investor interest. If this is the case, then why is ADR growth lagging behind the U.S. average?
The following chart compares the national average rate to the ADR of hotels in Manhattan. Consumer price index (CPI) data between 2007 and 2012 for the New York MSA and the entire U.S. is also presented.
According to Smith Travel Research, ADR increased approximately 5.0 percent in 2012 throughout the United States compared to only 2.0 percent in Manhattan. One could suggest that hotels in New York City focused on raising occupancy during this period and sacrificed rate growth. However, during 2012, occupancy growth was relatively consistent in both areas studied; the United States average occupancy increased 2.5 percent versus Manhattan at 2.8 percent. Of the top 25 U.S. markets, only Phoenix has underperformed NYC in terms of ADR percent change from the prior peak. ADR in the Phoenix market is 15.7 percent less than the 2007 peak, whereas NYC is approximately 11.0 percent less. Over the past six years, ADR in Manhattan has declined at a compound annual rate of 1.4 percent. During this time period, the average CPI increase in the New York MSA was 2.2 percent. Based on my knowledge of the NYC lodging market and discussions with owners and general managers, I have surmised the following factors which may be influencing ADR growth.
- New Supply: NYC has experienced a rapid expansion of new hotel development over the past several years. Between January 2006 and December 2012, the city experienced the greatest increase in supply on record. The net increase in room inventory has been greater than 5.0 percent per year for the past four years. Notable openings in 2012 include the following (hotel, opening date, and location):
- 122-room Holiday Inn New York City – January 2012 – Midtown
- 173-room Tryp by Wyndham New York City – February 2012 – Times Square South
- 463-room Conrad – March 2012 – Financial District (conversion from Embassy Suites)
- 168-room NoMad Hotel – April 2012 – Flatiron
- 367-room Pod 39 Hotel – July 2012 – Murray Hill
An additional 20 to 25 hotels are expected to open in 2013 (approximately 3,200 rooms) including the Hyatt Union Square, Hyatt Place Midtown South, CitizenM Hotel, Holiday Inn Lower East Side, Courtyard Midtown South, NYLO Upper West Side, in addition to others. While the increase in supply may be a catalyst for reduced ADR growth, it has not had a material affect due to the strength and diversity of demand in NYC.
- Chain Scale: Our research indicates many of the new hotels opening in NYC are smaller, lower-tier properties. A major trend during this rapid period of supply growth in NYC has been the introduction of more select-service/mid-scale branded hotels. The increase in rooms in the lower-tier chain scales are having an effect on market ADR growth, as these properties typically charge less than upscale and luxury hotels. Based on the increase in mid-scale hotel chains, New York is now considered a “more affordable” market which could lead to an increase in tourism over the next several years.
- $ vs. % Change: The Manhattan hotel market has historically been one of the highest rated markets in the country. The ADR as of year-end 2012 was close to $285 compared to the U.S. average of $107 based on Smith Travel Research data. The Manhattan market ADR is approximately 2.7 times greater than the U.S average; therefore, the percentage growth results in a much greater increase in the actual dollar amount compared to other markets across the country. For example, a 5.0 percent increase in the national ADR results in an increase of $5.33 versus a 2.0 increase in the Manhattan ADR which leads to an actual dollar increase of $5.68.
It should also be noted that during the fourth quarter of 2012, percentage ADR growth began to pick up compared to the first three quarters of the year. While investors were worried about the effects of Hurricane Sandy on the NYC market, many of the properties unaffected by water damage or power outages achieved a better than expected November and December RevPAR. Many of these hotels were housing displaced families as well as guests who were re-booked from damaged properties.
I frequently receive calls from hotel owners and investors asking how the recent surge in supply growth will affect the overall market. Despite the recent “slump” in ADR percentage growth, I believe the long-term fundamentals of the market are strong. The overall market occupancy is approximately 85 percent; which suggests enough un-accommodated demand to fill the new hotel rooms. However, each neighborhood of the city should be analyzed individually. In many cases, the “competitive market” for a hotel property in NYC is no more than a two block radius. Pinnacle Advisory Group has the ability to evaluate the performance of proposed, newly opened, and existing hotel properties through a detailed market analysis.
Please contact the New York Office of Pinnacle Advisory Group for more information on the NYC hotel market including a detailed listing of new development projects.
About The Author
Jonathan Jaeger is a Vice President with Pinnacle Advisory Group who heads up the New York City Office. Mr. Jaeger is a graduate of the School of Hospitality Administration at Boston University and has been with Pinnacle for over five years. During his tenure, Mr. Jaeger has completed over 150 assignments and analyses of hotels around the country. Licensed as a certified general real estate appraiser, Mr. Jaeger is a Candidate for Designation with the Appraisal Institute.
February 27, 2013 7:41 pm
Comments Off on Boston Luxury Properties Presented By Matt Arrants
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7:37 pm
Comments Off on NAIOP “Checking In or Out? The Outlook for New Development in Boston’s Hotel Market Presented by Rachel Roginsky
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February 1, 2013 6:22 pm
Comments Off on Improving Market Conditions Shift Focus to Improved Products Written by: Sebastian Colella
Periodic refurbishments are essential for every hotel with the goal of the upgrades having a positive impact on guest satisfaction and average daily rate (ADR). As design trends and preferences change frequently it is critical for a hotel to stay current in order to meet guest expectations, compete effectively and drive market share. The industry’s traditional renovation timeline has changed over the years as a result of the changing economic environment and its business cycles.
Traditionally, it has been common practice for hotels to update soft goods every five years and case goods every 10 years. However, renovation work can often be deferred or postponed, to conserve capital during periods of economic uncertainty. As occupancy and ADR declined during the two most recent recessions, following both the 2001 terrorist attacks and the 2008/2009 housing crises, capital spending nationwide diminished greatly as owners’ cash flows declined. During those periods, franchisors showed leniency for their required property improvement plans (PIPs). In a conversation with Harry Wheeler, AIA, Principal at Group One Partners, Inc., an architectural, interior design, and purchasing firm which specializes in hotels, he said “brands were allowing owners to defer their PIPs and refresh programs due to the recession, but now that the market is improving and hotels are getting back on track, these PIPS are now being mandated, requiring large investments in the individual properties.”
According to an article by Dr. Bjorn Hanson, Divisional Dean of the Preston Robert Tisch Center for Hospitality, Tourism & Sports, $3.5 billion in capital expenditures was spent to refurbish hotels in 2011, a 30 percent increase over the prior year. Having experienced a strong 2011 and an even stronger 2012, with RevPAR increasing 6.8 percent nation-wide, owners and operators are optimistic that the rebound will continue through 2013 and 2014. Smith Travel Research has projected an increase in RevPAR of 5.7 percent in 2013 driven by strong ADR growth and another 6.0 percent in 2014 driven by increases in both demand and rate. As hotels become more profitable, renovations will become more prevalent. As shown in the graph below, capital expenditure (CapEx) spending in hotels throughout the country correlates directly with the industry’s annual RevPAR performance.
Fueling renovations further is hotel transaction activity which reached $12.5 billion in the United States in 2012. This was a 36 percent decrease from 2011 which was dominated by distressed sales and REIT acquisitions which have become less common as the economy strengthens. Hotel transactions are expected to increase in 2013 for the following three reasons:
- Strong RevPAR growth projected for the next two years will result in higher profitability;
- Supply is expected to increase only marginally as most major markets are experiencing high barriers to entry due to increasing construction costs and tighter zoning regulations; and
- Financing has been more easily accessible as the economy recovers further.
Whether a hotel is purchased with the intent to be repositioned or remain with its current brand, there will almost always be a PIP required by the brand. After multiple years of postponement, these property upgrades can be quite costly. The scope of today’s brand required PIPs have escalated dramatically recently as brands seek to adapt to changing guest preferences, placing higher costs and brand standards on the owner. PIP schedules which once consisted of case goods and modifications to the lobby, can now include full restaurant concepts, front desks, significant exterior alterations, signage, software systems, etc. Many nationally recognized brands have recently implemented new design concepts, renovation guidelines and service standards. A few examples include:
Marriott’s Fairfield Inn brand, named after the Marriott family farm in Virginia, is completing the roll out of its generation four prototype and décor package called Perspective. The package is intended to connect the brand to its heritage and features a communal farm table, a “corner market,” and colorful new guestroom décor. Design specs for a new Courtyard by Marriott prototype are said to be in the works.
- Choice’s Comfort Inn brand has developed the “Truly Yours” prototype, designed to “deliver an intent to stay” which was introduced in 2012 and is currently being implemented throughout the country. In addition, the brand is mandating redesigned front desk areas and front desk uniforms at all domestic properties, to improve the guest’s first impression. Choice’s midscale new construction Sleep Inn product, also has a new design scheme “designed to dream,” which was introduced in 2011 and is a part of all new hotels and offered through a renovation program for existing hotels.
- With the goal of repositioning its Crowne Plaza brand from upscale to upper-upscale, in 2011 InterContinental Hotel Group launched “Freshen Up,” the first phase of a three-phase repositioning program, which is designed to raise product quality and consistency while launching a new modern look. Recently, the company rolled out phase two, “Move Up” which includes testing operational aspects such as mobile check-in, breakfast offerings and complimentary guestroom Wi-Fi which focus on guest satisfaction, and are designed to raise product quality. InterContinental has also worked extensively on refreshing its Holiday Inn brand standards
- In 2012, Wyndham outlined its first prototype for its Days Inn brand in its 42-year history. The company also announced plans for a “nostalgic refresh” of its Howard Johnson brand.
Harry Wheeler explains that “overall costs to PIPs can vary significantly due to a variety of factors including, geographic location and labor costs, a property’s age and condition, the number of rooms and amount of public space, market dynamics, and of course the brand itself.” One trend Wheeler has seen in 2012 and expects to continue in 2013, is that “brands are inclined to negotiate the implementation of the PIP requirements as long as their standards are not sacrificed. It is understood that the performance of some markets may not dictate the high costs required by the brand” and companies such as Wheeler’s, Group One Partners Inc, “are able to create value for an owner’s investment by working within a property’s unique conditions and understanding the brand standards which are expected of them”.
Improved top-line revenue through occupancy and rate is necessary and a better flow through (NOI) must be realized for a hotel owner to get a return on such a large investment. Property owners need to ask and answer some difficult questions: Will a $300,000 PIP increase the rate and occupancy of a 60-unit limited-service hotel with a RevPAR index of 85 percent enough to pay for itself in five years? Will the PIP allow the property to get its fair share of the market? And is the market strong enough to warrant the additional investment? Similarly, how much will a $1,250,000 PIP ($10,000 per room) impact a 125-room, select-service hotel already operating with a 110 percent RevPAR index and a 35 percent NOI? While the brand standards are important and an owner must comply, an owner’s first priority must be his or her investment in the property and its eventual return. They may also wish to consider alternate affiliations that may provide either greater support or reduced investment requirements.
Many owners and operators will attempt to improve market share by offering newly refreshed guest rooms and public spaces, with the desired effect of driving rate and occupancy. Prior to investing substantial capital into a hotel property, ownership should analyze the overall market, the property’s competitive set, and quantify the potential benefit of having a refreshed or rebranded product. In many markets, an upgraded product may attract previously unattainable demand, enhance profitability, or even help entice new demand into the market. While a full feasibility study is often required for financing purposes, some owners may find it helpful to have a third party expert validate their internal findings.
About the Author
Sebastian J. Colella is a consultant based in Pinnacle Advisory Group’s Boston office. Since joining Pinnacle in 2011, he has completed work involving lodging supply and demand analyses, facility recommendations, brand assessments, and appraisals of both branded and independent hotels and resorts. Sebastian holds a Bachelor of Science degree from the School of Hotel Administration at Cornell University and his industry experience includes roles in sales and operations at hotels, resorts, and private clubs.
11:50 am
Comments Off on Improving Market Conditions Shift Focus to Improved Products By: Sebastian J. Colella
Periodic refurbishments are essential for every hotel with the goal of the upgrades having a positive impact on guest satisfaction and average daily rate (ADR). As design trends and preferences change frequently it is critical for a hotel to stay current in order to meet guest expectations, compete effectively and drive market share. The industry’s traditional renovation timeline has changed over the years as a result of the changing economic environment and its business cycles.
Traditionally, it has been common practice for hotels to update soft goods every five years and case goods every 10 years. However, renovation work can often be deferred or postponed, to conserve capital during periods of economic uncertainty. As occupancy and ADR declined during the two most recent recessions, following both the 2001 terrorist attacks and the 2008/2009 housing crises, capital spending nationwide diminished greatly as owners’ cash flows declined. During those periods, franchisors showed leniency for their required property improvement plans (PIPs). In a conversation with Harry Wheeler, AIA, Principal at Group One Partners, Inc., an architectural, interior design, and purchasing firm which specializes in hotels, he said “brands were allowing owners to defer their PIPs and refresh programs due to the recession, but now that the market is improving and hotels are getting back on track, these PIPS are now being mandated, requiring large investments in the individual properties.”
According to an article by Dr. Bjorn Hanson, Divisional Dean of the Preston Robert Tisch Center for Hospitality, Tourism & Sports, $3.5 billion in capital expenditures was spent to refurbish hotels in 2011, a 30 percent increase over the prior year. Having experienced a strong 2011 and an even stronger 2012, with RevPAR increasing 6.8 percent nation-wide, owners and operators are optimistic that the rebound will continue through 2013 and 2014. Smith Travel Research has projected an increase in RevPAR of 5.7 percent in 2013 driven by strong ADR growth and another 6.0 percent in 2014 driven by increases in both demand and rate. As hotels become more profitable, renovations will become more prevalent. As shown in the graph below, capital expenditure (CapEx) spending in hotels throughout the country correlates directly with the industry’s annual RevPAR performance.
Fueling renovations further is hotel transaction activity which reached $12.5 billion in the United States in 2012. This was a 36 percent decrease from 2011 which was dominated by distressed sales and REIT acquisitions which have become less common as the economy strengthens. Hotel transactions are expected to increase in 2013 for the following three reasons:
- Strong RevPAR growth projected for the next two years will result in higher profitability;
- Supply is expected to increase only marginally as most major markets are experiencing high barriers to entry due to increasing construction costs and tighter zoning regulations; and
- Financing has been more easily accessible as the economy recovers further.
Whether a hotel is purchased with the intent to be repositioned or remain with its current brand, there will almost always be a PIP required by the brand. After multiple years of postponement, these property upgrades can be quite costly. The scope of today’s brand required PIPs have escalated dramatically recently as brands seek to adapt to changing guest preferences, placing higher costs and brand standards on the owner. PIP schedules which once consisted of case goods and modifications to the lobby, can now include full restaurant concepts, front desks, significant exterior alterations, signage, software systems, etc. Many nationally recognized brands have recently implemented new design concepts, renovation guidelines and service standards. A few examples include:
Marriott’s Fairfield Inn brand, named after the Marriott family farm in Virginia, is completing the roll out of its generation four prototype and décor package called Perspective. The package is intended to connect the brand to its heritage and features a communal farm table, a “corner market,” and colorful new guestroom décor. Design specs for a new Courtyard by Marriott prototype are said to be in the works.
- Choice’s Comfort Inn brand has developed the “Truly Yours” prototype, designed to “deliver an intent to stay” which was introduced in 2012 and is currently being implemented throughout the country. In addition, the brand is mandating redesigned front desk areas and front desk uniforms at all domestic properties, to improve the guest’s first impression. Choice’s midscale new construction Sleep Inn product, also has a new design scheme “designed to dream,” which was introduced in 2011 and is a part of all new hotels and offered through a renovation program for existing hotels.
- With the goal of repositioning its Crowne Plaza brand from upscale to upper-upscale, in 2011 InterContinental Hotel Group launched “Freshen Up,” the first phase of a three-phase repositioning program, which is designed to raise product quality and consistency while launching a new modern look. Recently, the company rolled out phase two, “Move Up” which includes testing operational aspects such as mobile check-in, breakfast offerings and complimentary guestroom Wi-Fi which focus on guest satisfaction, and are designed to raise product quality. InterContinental has also worked extensively on refreshing its Holiday Inn brand standards
- In 2012, Wyndham outlined its first prototype for its Days Inn brand in its 42-year history. The company also announced plans for a “nostalgic refresh” of its Howard Johnson brand.
Harry Wheeler explains that “overall costs to PIPs can vary significantly due to a variety of factors including, geographic location and labor costs, a property’s age and condition, the number of rooms and amount of public space, market dynamics, and of course the brand itself.” One trend Wheeler has seen in 2012 and expects to continue in 2013, is that “brands are inclined to negotiate the implementation of the PIP requirements as long as their standards are not sacrificed. It is understood that the performance of some markets may not dictate the high costs required by the brand” and companies such as Wheeler’s, Group One Partners Inc, “are able to create value for an owner’s investment by working within a property’s unique conditions and understanding the brand standards which are expected of them”.
Improved top-line revenue through occupancy and rate is necessary and a better flow through (NOI) must be realized for a hotel owner to get a return on such a large investment. Property owners need to ask and answer some difficult questions: Will a $300,000 PIP increase the rate and occupancy of a 60-unit limited-service hotel with a RevPAR index of 85 percent enough to pay for itself in five years? Will the PIP allow the property to get its fair share of the market? And is the market strong enough to warrant the additional investment? Similarly, how much will a $1,250,000 PIP ($10,000 per room) impact a 125-room, select-service hotel already operating with a 110 percent RevPAR index and a 35 percent NOI? While the brand standards are important and an owner must comply, an owner’s first priority must be his or her investment in the property and its eventual return. They may also wish to consider alternate affiliations that may provide either greater support or reduced investment requirements.
Many owners and operators will attempt to improve market share by offering newly refreshed guest rooms and public spaces, with the desired effect of driving rate and occupancy. Prior to investing substantial capital into a hotel property, ownership should analyze the overall market, the property’s competitive set, and quantify the potential benefit of having a refreshed or rebranded product. In many markets, an upgraded product may attract previously unattainable demand, enhance profitability, or even help entice new demand into the market. While a full feasibility study is often required for financing purposes, some owners may find it helpful to have a third party expert validate their internal findings.
About the Author
Sebastian J. Colella is a consultant based in Pinnacle Advisory Group’s Boston office. Since joining Pinnacle in 2011, he has completed work involving lodging supply and demand analyses, facility recommendations, brand assessments, and appraisals of both branded and independent hotels and resorts. Sebastian holds a Bachelor of Science degree from the School of Hotel Administration at Cornell University and his industry experience includes roles in sales and operations at hotels, resorts, and private clubs.
About Pinnacle Advisory Group
Since 1991, Pinnacle has provided advice and analysis on the full spectrum of hospitality properties: hotels, resorts, conference centers, timeshare and other residential resort facilities, golf courses, ski slopes, marinas, and such public assembly facilities as theme parks, arenas, convention centers and exhibition centers.
January 1, 2013 7:45 pm
Comments Off on Boston Hospitality Review Lodging Update: Portland, Maine Presented by Rachel Roginsky and Matthew Arrants
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7:43 pm
Comments Off on The Hotel Perspective – New England Chapter – MPI Presented by Matthew Arrants
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6:23 pm
Comments Off on Tampa Bay Market Report – Making Steady Progress: Development & Transaction Activity Accelerates
Written by: Allison Fogarty
Tampa Bay’s lodging market accelerated sharply in 2012 abetted by the much touted Republican National Convention in late August. Although media-fueled speculation about the path of Tropical Storm Isaac threatened to put a damper on the festivities, hoteliers throughout the region (no matter what their politics) were cheered by the sight of convention delegates flooding into the region during a traditional occupancy crater. In Hillsborough County alone, RevPAR in August 2012 was up almost 55 percent on the prior year. Across the bay, Pinellas hotels also benefited, as RevPAR was up 27 percent over 2011.
The Tampa Bay regional lodging market is comprised of four counties – the northern suburban counties of Hernando and Pasco, Hillsborough which includes the City of Tampa, and densely populated Pinellas County which includes St Petersburg and Clearwater, and a large swath of Gulf of Mexico beachfront. Hillsborough and Pinellas represent about 50 and 42 percent of the region’s rooms inventory, respectively. In 2012, according to Smith Travel Research statistics, the regional hotel market finally approached 2007 RevPAR levels, ending the year at 63.1 percent occupancy at an average rate of just over $100, finally absorbing the supply of rooms completed during the bust. A number of properties have not survived the downturn, and while some properties fell into the hands of lenders, a few of the older and poorly maintained properties closed, resulting in a slight decrease in supply in 2011, and no net increase in supply in 2012. Demand during the same period increased by 9.2 and 4.4 percent, respectively. In Tampa, the long-shuttered luxury Floridan Palace Hotel re-opened after an extended renovation during the summer, and on Clearwater Beach, the Pier House 60 Marina Hotel opened on the site of the late Port Vue Motel.
With RevPAR’s on the rise, there has been a decided uptick in hotel sales activity in 2012, as involuntary owners worked to clear their books, and some investors’ rejigged portfolios. In Pinellas County, more non-real estate owned sales occurred in 2012, according to county records, than in the prior three years combined. Prices ranged widely from $17,000 to $118,000 per key and averaged $62,000 per room. Across the bay in Tampa, transaction activity remained sluggish with sales mainly limited to REO or portfolio sales.
Over the next year, we expect continued improvement in the lodging market. Although 2013 convention activity will be soft, prospects may be better than the figures demonstrate, as convention planners continue to be very conservative with their hotel blocks, and frequently pick up more rooms than initially booked. In addition local hotel sales executives have noted, and frequently bemoaned, the trend of convention attendees to book outside the block, often through OTAs. Hoteliers are (very) cautiously optimistic about the prospects for 2013. Most seem to believe that provided the government does not precipitate another economic downturn, the prospects for the year are positive, and expect increases in business and leisure travel to make up any softness in the convention market. As a result, Pinnacle Advisory Group forecasts a 3.0% increase in RevPAR in the Greater Tampa Bay region.
Development interest in the Tampa Bay market has revived, with three limited and select service properties under construction, and five properties recently announced and in various stages of the planning process. A 115-unit Hampton Inn on Clearwater Beach received CDD approval earlier this month and is slated to go before the City Council shortly. In Tampa, an aloft has been announced for a site along the Hillsborough River and plans for the conversion of the old federal courthouse into a 110-unit Le Meridian are well underway. Two additional projects have also recently been announced as part of mixed use developments: a proposed 350 unit hotel within an office complex near the University of South Florida’s Center for Advanced Medical Learning and Simulation which expects to draw more than 30,000 health professionals to the City annually for training, and a proposed project at the riverfront site of the shelved Trump Tower. All four Tampa projects are located within a short distance of each other in downtown Tampa which has historically boasted the highest RevPAR among the Hillsborough County submarkets.
Recovery is well underway in the Tampa Bay region, and employment levels have increased at rates well above the rest of the country during the past year. Developers have taken note, and although some lodging submarkets, most notably North Tampa, continue to post RevPARs below national averages partially due to a large supply of older product, the region as a whole seems poised for a growth period.
About the Author
Allison Fogarty is the Managing Director of Pinnacle Advisory Group’s Florida and Caribbean Practice Group. Ms. Fogarty has extensive experience in hotel and resort development. Her activities have included site selection, property inspection, contract negotiation and review and due diligence. She has also been responsible for project planning and directing the activities of architects and project engineers. As a consultant, she has directed and completed market and financial analysis engagements for hotels, resorts and gaming companies in the eastern United States and the Caribbean.
11:52 am
Comments Off on Tampa Bay Market Report – Making Steady Progress: Development & Transaction Activity Accelerates by: Allison Fogarty Allison Fogarty
Director – Florida Office of Pinnacle Advisory Group
Tampa Bay’s lodging market accelerated sharply in 2012 abetted by the much touted Republican National Convention in late August. Although media-fueled speculation about the path of Tropical Storm Isaac threatened to put a damper on the festivities, hoteliers throughout the region (no matter what their politics) were cheered by the sight of convention delegates flooding into the region during a traditional occupancy crater. In Hillsborough County alone, RevPAR in August 2012 was up almost 55 percent on the prior year. Across the bay, Pinellas hotels also benefited, as RevPAR was up 27 percent over 2011.
The Tampa Bay regional lodging market is comprised of four counties – the northern suburban counties of Hernando and Pasco, Hillsborough which includes the City of Tampa, and densely populated Pinellas County which includes St Petersburg and Clearwater, and a large swath of Gulf of Mexico beachfront. Hillsborough and Pinellas represent about 50 and 42 percent of the region’s rooms inventory, respectively. In 2012, according to Smith Travel Research statistics, the regional hotel market finally approached 2007 RevPAR levels, ending the year at 63.1 percent occupancy at an average rate of just over $100, finally absorbing the supply of rooms completed during the bust. A number of properties have not survived the downturn, and while some properties fell into the hands of lenders, a few of the older and poorly maintained properties closed, resulting in a slight decrease in supply in 2011, and no net increase in supply in 2012. Demand during the same period increased by 9.2 and 4.4 percent, respectively. In Tampa, the long-shuttered luxury Floridan Palace Hotel re-opened after an extended renovation during the summer, and on Clearwater Beach, the Pier House 60 Marina Hotel opened on the site of the late Port Vue Motel.
With RevPAR’s on the rise, there has been a decided uptick in hotel sales activity in 2012, as involuntary owners worked to clear their books, and some investors’ rejigged portfolios. In Pinellas County, more non-real estate owned sales occurred in 2012, according to county records, than in the prior three years combined. Prices ranged widely from $17,000 to $118,000 per key and averaged $62,000 per room. Across the bay in Tampa, transaction activity remained sluggish with sales mainly limited to REO or portfolio sales.
Over the next year, we expect continued improvement in the lodging market. Although 2013 convention activity will be soft, prospects may be better than the figures demonstrate, as convention planners continue to be very conservative with their hotel blocks, and frequently pick up more rooms than initially booked. In addition local hotel sales executives have noted, and frequently bemoaned, the trend of convention attendees to book outside the block, often through OTAs. Hoteliers are (very) cautiously optimistic about the prospects for 2013. Most seem to believe that provided the government does not precipitate another economic downturn, the prospects for the year are positive, and expect increases in business and leisure travel to make up any softness in the convention market. As a result, Pinnacle Advisory Group forecasts a 3.0% increase in RevPAR in the Greater Tampa Bay region.
Development interest in the Tampa Bay market has revived, with three limited and select service properties under construction, and five properties recently announced and in various stages of the planning process. A 115-unit Hampton Inn on Clearwater Beach received CDD approval earlier this month and is slated to go before the City Council shortly. In Tampa, an aloft has been announced for a site along the Hillsborough River and plans for the conversion of the old federal courthouse into a 110-unit Le Meridian are well underway. Two additional projects have also recently been announced as part of mixed use developments: a proposed 350 unit hotel within an office complex near the University of South Florida’s Center for Advanced Medical Learning and Simulation which expects to draw more than 30,000 health professionals to the City annually for training, and a proposed project at the riverfront site of the shelved Trump Tower. All four Tampa projects are located within a short distance of each other in downtown Tampa which has historically boasted the highest RevPAR among the Hillsborough County submarkets.
Recovery is well underway in the Tampa Bay region, and employment levels have increased at rates well above the rest of the country during the past year. Developers have taken note, and although some lodging submarkets, most notably North Tampa, continue to post RevPARs below national averages partially due to a large supply of older product, the region as a whole seems poised for a growth period.
About Pinnacle Advisory Group
Since 1991, Pinnacle Advisory Group has provided advice and analysis on the full spectrum of hospitality properties throughout the US and Caribbean: hotels, resorts, conference centers, mixed use projects, convention centers and exhibition centers. Pinnacle’s services include development counseling, appraisals, acquisition due diligence, asset management and litigation support. Our clients include leading hotel companies, REITs, universities, major banks and municipalities. We specialize in providing personalized advice on complex projects, carefully tailoring our services to each client’s individualized needs.
About the Author
Allison Fogarty is the Managing Director of Pinnacle Advisory Group’s Florida and Caribbean Practice Group. Ms. Fogarty has extensive experience in hotel and resort development. Her activities have included site selection, property inspection, contract negotiation and review and due diligence. She has also been responsible for project planning and directing the activities of architects and project engineers. As a consultant, she has directed and completed market and financial analysis engagements for hotels, resorts and gaming companies in the eastern United States and the Caribbean.
November 1, 2012 11:54 am
Comments Off on Developing Hotels near Medical Centers by: Alan Suzuki
Written by: Alan Suzuki
Senior Vice President – Pinnacle Advisory Group
Over the past few years, Pinnacle Advisory Group has conducted numerous market feasibility studies for proposed hotels near major Medical Centers. Hotel developers have discovered that Medical Centers, particularly those that attract patients from beyond the immediate surrounding region, can be major generators of lodging demand. As a result of our in-depth interviews with hospital administrators, we have amassed a great deal of knowledge regarding these unique developments. Demand for patient lodging versus demand from professionals (administration, education, and research) is intrinsically different – representing two distinct subsets of demand generated by operations at Medical Centers. These two subsets of demand are explored further in the paragraphs that follow.
Patients (Inpatient and Outpatient)
Typically, the largest component of demand from a Medical Center is generated by the patients and their caretakers. In most cases, a patient will initially come to the Medical Center for an outpatient visit. If a patient is traveling from outside of the region for an evaluation, they will likely need overnight accommodations. Following an outpatient visit, a patient may take weeks/months to decide to proceed with a procedure, in which case they will return for a longer inpatient stay. For inpatient stays, generally, a caretaker would stay at a hotel while the patient remains in the hospital. In some cases, even after a hospital discharge, a patient may elect to stay at a hotel proximate to the Medical Center for a few days to ensure there are no complications prior to returning to their home. We found that on average, the length of stay for inpatient visitors was 5 to 10 days (compared to 1 to 2 days for outpatient visits).
While patient preferences may vary from hospital to hospital, we found that patients typically prefer a limited-service, low to moderately priced hotel. Patients and caretakers are looking for comfortable, safe, and affordable overnight accommodations, but most importantly they are looking for a hotel that is convenient and proximate to the hospital. In general, extensive services and amenities are unnecessary, however, a quick and convenient grab-and-go option within the hotel might be attractive to a caretaker or patient – particularly if there is a lack of outside dining options nearby.
Professionals (Education/Research/Administration)
In addition to demand from patient visits, Medical Centers also generate a significant amount of lodging demand from visiting professionals. This base of demand typically includes visiting doctors, visitors attending a conference or a seminar, consultants, vendors, and interviewees. If the Medical Center is affiliated with an educational institution, demand may be generated from families visiting medical students as well as friends and family attending special events such as graduation.
The level of demand from this subset largely hinges on the extent of the Medical Center’s continuing education program. Prestigious Medical Centers such as the Mayo Clinic and Johns Hopkins, for example, draw hundreds of doctors and administrators from around the world on a weekly basis for continuing education courses. For these types of hospitals, continuing education may generate tens of thousands of room nights for the local lodging market. Other sources of demand are largely modest in comparison.
Our research has taught us that guest preferences from this subset of demand are very different than those from the patient demand sub-segment. While some visiting doctors are attracted to the hotel accommodations most convenient and proximate to the hospital, a large portion of this subset is typically seeking a more upscale product with more elaborate amenities. On frequent occasions, doctors and administrators visiting or attending a conference may be combining the business at hand with a leisure trip. As such, proximity, affordability, and convenience may be traded in for a hotel closer to popular dining and entertainment or for a hotel that offers a more upscale experience.
Conclusion
On the basis of our research, patient demand for lodging near Medical Centers typically exceeds demand from professionals, even if the Medical Center offers a significant continuing education program. Therefore, for developers interested in building hotels near Medical Centers, the product that would likely be most attractive to the largest subset of demand would be a low to moderately priced hotel that is safe, convenient, and proximate to the hospital. Consideration can be given to an extended-stay hotel as a significant number of inpatients may have caretakers and their families staying for an average of 5 to 10 days.
In summary, the prestige of the Medical Center as it translates into continuing education and special events to attract high-level medical professionals combined with a large number of patients coming from outside the immediate region typically translates into a large demand base for lodging accommodations. However, since each situation is unique, the best way to evaluate the need for such lodging is through a thorough an in-depth market feasibility study.
Since 1991, Pinnacle Advisory Group has provided advice and analysis on the full spectrum of hospitality properties: hotels, resorts, conference centers, timeshare and other resort residential development, golf courses, ski areas, marinas, and public assembly facilities including theme parks, arenas, convention centers and exhibition centers. Pinnacle’s services include development counseling, appraisals, acquisition due diligence, asset management and litigation support.
