Hotel Development: An Economic Stimulus for Some Communities Presented by: Alan Suzuki
Presented by: Alan Suzuki
Many municipalities see a new hotel as a welcome development in their community. New hotels may bring additional tax revenues, create jobs, and may also stimulate the local economy through the development of other new buildings and businesses or simply by attracting new visitors who may frequent local restaurants and retail stores. In some cases, the need for hotel development is evident and hotel developers vie for development rights. However, sometimes the feasibility of a hotel is not as clear and it may take an in depth study to determine whether a new hotel is viable.
Over the years, many municipalities have engaged Pinnacle Advisory Group to determine whether a new hotel would be feasible in their community. In many cases, if a hotel development was found to be viable, the municipality would utilize the market study to market sites either owned privately or by the municipality to interested developers.
In the following paragraphs, we present three examples in which a city’s proactive marketing helped to bring a new hotel to its community.
Several years ago, the City of Chelsea engaged Pinnacle to conduct an analysis of the potential market support for hotel development as well as a site evaluation of three potential hotel sites. Pinnacle found that there was sufficient demand to justify the development of a hotel and thus the study was distributed to the development community. Two years following the completion of the study, WEDGE Hotels Corporation was selected as the developer. One of the available sites was purchased for $1.2 million from the Chelsea Economic Development Board. To encourage the development of the hotel, the City of Chelsea and WEDGE Hotels Corporation entered into a tax increment financing agreement (TIF) for the hotel’s first 10 years of operation. Today, the Wyndham Chelsea continues to be a successful operating entity and the original developer continues to own and operate the hotel.
Concord, New Hampshire
The New Hampshire Civic Center Commission began the initial process of evaluating the potential market support for a hotel and conference center in the City of Concord, New Hampshire. Pinnacle was engaged and determined that there would be sufficient demand to support a hotel and conference center in either of two locations: downtown and just north of the main business district. While Pinnacle recommended that the downtown site would be a better location, the city chose to develop the hotel and conference center just north of the city in order to encourage further development north of where the majority of the infrastructure existed. The site included a significant amount of additional land and the development served as a catalyst for further growth. Ultimately, the city chose to build the conference center and then sold the land to a hotel developer to build an adjacent hotel. Today, the site is improved with a 90-room Courtyard by Marriott and a 9,400 square foot conference center. The site has been built as part of a 40-acre development area known as the North End Opportunity Corridor. The city created a $5 million Tax Increment Finance (TIF) District and has used that financing to acquire properties, easements, and to develop the necessary infrastructure. These efforts have encouraged approximately 196,000 square feet of new development that is part of the Corporate Center at Horseshow Pond.
New Bedford, Massachusetts
Currently without a hotel in downtown, the City of New Bedford in collaboration with the New Bedford Economic Development Council wanted to market hotel development as a key piece to its redevelopment efforts. However, without evidence of existing hotel demand, persuading a hotel developer to build a hotel in downtown had been challenging. Pinnacle was engaged by the New Bedford Economic Development Council to assess demand primarily through demand interviews with several businesses throughout the city and found that there was enough existing and potential demand to justify the development of a small hotel. Convinced in part due to the market study as well as New Bedford’s continuing efforts to revitalize the city, LaFrance Hospitality Company decided to develop a 106-room Fairfield Inn & Suites on a 1.6-acre parcel across from New Bedford’s fishing piers. With the assistance of the city, LaFrance purchased the site for $1.2 million and is working with the city on tax incentives. While the hotel is not quite under construction, the site has been cleared and construction is expected to begin in the late spring/early summer of 2009. The new hotel, which will incorporate the redevelopment of a historical waterfront building, is expected to open in 2010.
In the examples above and in many similar circumstances, municipalities may need to offer assistance or incentives to generate enthusiasm from potential hotel developers. A few suggestions on what a municipality can do to attract developers include:
- Distributing a comprehensive third party market feasibility study
- Providing assistance on acquiring the land through a favorable ground lease or through a favorable sale of the property
- Tax incentives for the initial years
- Assistance maneuvering through the approval process
In some cases, the development of a new hotel in a historically overlooked location may be made possible through the efforts of a local government. Such efforts may result in significant economic benefits to the community and also may prove to be a profitable investment for the hotel developer.