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VOL. 126 | NO. 39 | Friday, February 25, 2011

Hotel Turnaround

Strong 2011 expected for area hotels

Michael Waddell

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Memphis’ lodging industry officials might be breathing a sigh of relief, as the worst of the hotel industry’s slump seems to be in the rearview mirror.

The Westin Hotel at 170 Lt. George W. Lee is located across from the FedExForum Downtown.
(Photo: Lance Murphey)

The feeling coming out of this month’s annual Metropolitan Memphis Hotel and Lodging Association industry update is optimism for a strong 2011, buoyed by increased demand and a lack of new construction.

“We see demand growing at a healthy pace during 2011,” said Chuck Pinkowski, owner of Pinkowski & Co., a consulting firm specializing in the hospitality industry. “Our forecast on occupancy is for the city of Memphis to achieve 60 percent for 2011 at an $80 average daily rate. That will result in a RevPAR (revenue per available room) increase of about 12 percent over 2010.”

Pinkowski also predicts a 7 percent increase in room night demand, or about 336,000 new rooms occupied this year. Demand jumped 9.3 percent during 2010.

Last year marked the beginning of the comeback for a market that bottomed out in 2009. Overall occupancy in the market rose 6.4 percent to 56 percent, but average daily rates fell from $78.92 to $75.67, or 4.1 percent.

Memphis-area hoteliers sold 4.7 million room nights – the highest total since 2006 – at 246 hotel properties with a total of 23,085 rooms during 2010.

Every day last year, 1,100 more rooms were sold in the area compared to 2009, totaling 401,330 additional rooms for the year and more than $16 million in extra revenue. Hotels actually booked more rooms last year than during the industry’s peak in 2007, but overall revenue for the year still registered down more than $29 million compared to 2007 due to falling ADRs.

Financing for new hotels and renovation projects began to tighten up in 2008, and that trend is expected to continue through this year, 2012 and possibly even 2013.

“Our ownership had announced plans to do an expansion about a year and a half ago, but those plans were put on hold due to the downturn in the market,” said MMHLA President Mary Calorio, who is also the general manager at Elvis Presley’s Heartbreak Hotel.

Some loosening of financing is expected, however, following last year’s stranglehold by lenders.

“The CNBS market is starting to open up a little bit,” said Jeff Higley of Smith Travel Research, referring to CNBS LLC, a broker-dealer and registered investment adviser serving financial institutions. “Last year, estimates are that about $10 billion in CNBS funding was secured. This year that could go up to $50 billion to $70 billion. It could mean very good things for the development community.

“Six percent loans are available for hotels,” Higley continued. “One broker told me there were more than 50 lenders active in the hotel industry right now. That’s certainly down from the 100 to 125 that were in existence in 2007 and 2008, but it’s more than the 12 that were out there last year.”

Overall room inventory for the Memphis lodging market will actually decrease this year because no new rooms will be added and two hotels will be taken out of inventory: the 120-room Benchmark Hotel Downtown, which closed at the end of last year, and the 76-room Country Hearth Inn & Suites in Midtown, which closed in the middle of last year. Nationally, room supply is expected to grow by less than 1 percent this year.

Downtown/Midtown and East Memphis were the strongest areas of the city last year. Downtown/Midtown topped local ADRs with $113.06 as well as RevPAR with $69.30. Highest occupancy went to the Poplar/East submarket, which has overtaken Downtown in the past few years, at 63.6 percent.

The worst-performing submarkets were West Memphis and Airport/South, which both experienced ADRs in the high $50s, occupancies in the mid-40s and RevPAR in the mid-$20s.

Due to favorable growth, Millington/North and its 1,035 rooms received its own category for the first time this year and for good reason. The submarket was the only local area to see an increase in ADR, with a 4.1 percent surge. Millington also had the highest area occupancy boost, with an increase of nearly 21 percent.

Upscale hotels like Hilton and Westin fared the best in the area, with an average 68.5 percent occupancy. The Midscale with Food & Beverage category, at properties like Clarion, Sheraton Four Points, Holiday Inn and Ramada, performed the worst in the market and well below national averages. The category achieved only 49.2 percent average occupancies and average RevPAR of only $46.32.

ADRs for all local hotel segments have decreased for two consecutive years, but that is expected to reverse this year.

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