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VOL. 7 | NO. 41 | Saturday, October 4, 2014

Room for Growth

Memphis hotel industry booming but not impacting convention business

By Amos Maki

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Sardor and Gulam Umarov are used to fighting battles with seemingly long odds.

Between 2005 and 2009, the brothers waged a high-profile human rights campaign against the authoritarian government in their native Uzbekistan for the release of their father, Sanjar Umarov, a Germantown businessman thrown into prison for opposing the regime.

Now, after their father’s release in November 2009, the brothers have turned their attention to another challenging – but promising – effort, redeveloping the 19-story Exchange Building at Madison Avenue and Second Street Downtown to include apartments and 70 hotel rooms.

The two brothers, who as part of a previous partnership acquired the 202-unit apartment building out of foreclosure in 2010 and took full control of the property in 2011, are in the midst of transforming it into a mixed-use apartment and hotel project seen in major markets like New York City or Chicago.

“We’re pretty excited to take this challenge on,” said Sardor Umarov. “Other cities around the world have creative developments like this, and so can Memphis.”

The Umarovs are part of a wave of hotel development in Memphis, a boom that will deliver hundreds of new or refurbished rooms to the market in the coming year.

“It’s great to see hotel activity going on, and there is a lot of it,” said Kevin Kane, president of the Memphis Convention and Visitors Bureau. “We’re very encouraged by the activity and we’re feeling good about where we’re headed.”

Currently, around 1,085 new hotels rooms are planned or under development in Memphis, with nearly all of them – 961 rooms – springing up in and around the city’s two main tourist destinations, Downtown and Graceland. A complete overhaul of the Holiday Inn near Memphis International Airport, from the closets in the rooms to the lobby and meeting areas, includes another 440 rooms.

The Memphis area contains 241 hotels with a total of 22,353 rooms, according to numbers compiled for the Convention and Visitors Bureau by Smith Travel.

The 2013 occupancy rate for Memphis hotels was 60.1 percent, down from 60.6 percent in 2012 and below cities like Charlotte, N.C., Tampa, Fla., Atlanta and Nashville, which recorded an occupancy rate of 68.8 percent, according to Smith Travel.

However, Kane said that Memphis may have turned a corner in August, when occupancy reached 67 percent, up 10 percent from August 2013.

Kane attributed the spike in hotel development to the availability of capital. During and after the recession lenders just weren’t comfortable financing hotels, Kane said.

“Hotel financing was difficult in this recession,” said Kane. “When money started loosening up, it loosened up for apartments and not hotels, but that is changing. The financial markets were a little late to support hotel development and now that is starting to change, and I think Memphis can take advantage of that.”

While the hotel building boom is welcome news, it remains unclear how much the spurt will aid the city’s efforts to attract more convention business. The planned hotels, except for the 450-room giant planned for the Graceland area, are smaller, limited-service hotels without the large meeting spaces desired by convention planners, Kane said.

“We get a lot of limited-service hotels that really don’t change our world,” said Kane. “I’m looking for something that will push the needle and bring more business to town, and we don’t really have anything like that. Having said that, we’re encouraged by what we’re seeing right now.”

The location of Turkey Creek Hospitality's planned Hilton Garden Inn across from AutoZone Park on Union Avenue.

(Memphis News/Andrew J. Breig)

When the Umarovs acquired the Exchange Building in 2010, it rented exclusively to low-income Section 8 housing voucher recipients. As those tenants left the building, the brothers began making improvements to the property and offering the apartments at market rate.

But the Umarovs had bigger ideas for the tower, which was built in 1910 and formerly known as the Cotton Exchange Building and the Merchants Exchange Building. They moved into the building, turning an investment into a home, and began planning their next steps.

“We’re emotionally attached to this building, not only because of its location and place, but because of its history,” said Sardor Umarov.

Since acquiring a special-use permit for the project from the Memphis City Council in July, the Umarov brothers have begun gradually converting apartments into hotel rooms – they plan on transforming 70 of the 202 apartments in the building into guest rooms – and making other improvements.

Near the marble-lined lobby, the Umarovs have installed a check-in counter for hotel guests and are creating an improved lobby and reception area and making other cosmetic changes.

Because they were formerly apartments, the hotel rooms will have full kitchens and bathrooms, making them an ideal fit for extended-stay customers as well as overnight guests. Rooms at the Exchange will feature different Memphis-centered themes, such as civil rights, music or cotton.

“When I travel I want to experience the local culture, and that is what we’re going to provide here,” said Sardor Umarov.

The Guest House at Graceland will bring 450 rooms to the market when construction is finished.

(Courtesy of Elvis Presley Enterprises)

The Umarovs are now operating what is basically a trial run. They are hosting a limited number of guests, including some cast members from “The Phantom of the Opera,” in preparation of next year’s grand opening. During this phase of the project, the Umarovs are focused entirely on developing systems and procedures to make the hotel successful.

“We won’t have a problem filling the rooms,” said Gulam Umarov. “Because this hasn’t been done before in Memphis, there’s no one we can really go ask about this and there’s trial and error. We want to focus on our systems now and hopefully have a grand opening in the first quarter of 2015.”

The Umarovs aren’t the only team invested in bringing more hotel rooms to Downtown.

Knoxville-based Turkey Creek Hospitality plans two hotels on Union Avenue across from AutoZone Park, including a 140-room Hilton Garden Inn at 195 Union Ave., which previously housed a Greyhound terminal. The Greyhound building has been razed and the site is prepped for development. Turkey Creek’s second planned hotel is a 115-room Holiday Inn Express that will replace a 186-space parking lot at 235 Union Ave.

Bass Pro Shops is building a hotel, the 101-room Big Cedar Lodge, as part of the $190 million effort to redevelop The Pyramid. In addition, the 600-room Sheraton Memphis Downtown Hotel on North Main in June filed a $4.5 million permit for room renovations.

“There is a pretty good demand for hotels,” said Paul Morris, president of the Downtown Memphis Commission. “The day-to-day demand is strong but not overwhelming. There’s obviously enough demand that you see people developing.”

Morris said that as Downtown continues to grow he expects more specialty hotel development in the area.

“There’s other potential deals with unique hotel concepts that would be special – not the typical limited-service hotels – that are percolating in the pipeline but not developed yet,” said Morris.

Kane said one of the most impressive hotel projects underway in Memphis isn’t a new hotel, but the renovation of the Holiday Inn Memphis Airport Hotel and Conference Center near the airport.

The Holiday Inn recently reopened following a $22 million makeover of 256 rooms, a new lobby, restaurant and bar, and upgrades to the fitness and meeting facilities. The hotel’s remaining 184 rooms will get the same treatment.

“Those rooms and the common areas, the lobby and the outside of the hotel, you could put it at Poplar and Ridgeway in East Memphis and it would fit,” said Kane. “It’s a spectacular improvement, really first class.”

In the nearby Whitehaven area, which is experiencing a renaissance in investment, two new hotels are planned.

Developer SNP Investments is planning an 85-room Holiday Inn Express at 3411 Elvis Presley Blvd., between Winchester and Old Hernando roads.

Elvis Presley Enterprises is preparing for the development of a $75 million, 450-room resort-style hotel called the Guest House at Graceland north of the Graceland mansion. The Guest House at Graceland, scheduled to open in the fall of 2015, will be the third-largest hotel in the city by the number of rooms and the largest hotel project in Memphis in three decades, according to Kane.

Elvis Presley Enterprises and city leaders hope the look of the resort-style hotel will spread to other parts of the boulevard, where the city and state plan $43 million in improvements over the next few years.

“It’s great to see that kind of investment when you are working to rebuild a community, and particularly in the inner city,” said City Council member Harold Collins, who represents the Graceland area.

MORTGAGES 70 240 986
BUILDING PERMITS 180 470 2,128