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VOL. 131 | NO. 34 | Wednesday, February 17, 2016

Downtown Hotel Pipeline May Deter Larger Developer

By Madeline Faber

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The proliferation of limited-size Downtown hotels could make the area less attractive for the 500-room, full-service hotel Downtown desperately needs.

Two side-by-side hotels got the green light last week while city officials have concerns over filling the Downtown core with small, limited-service hotels.

(Submitted)

That was board member Rob Norcross’ warning at the Feb. 11 meeting of the Land Use Control Board. And the Memphis Convention & Visitors Bureau agrees that small hotels pose a risk.

Norcross was the only board member to vote down a developer’s proposal for two, side-by-side hotels across from AutoZone Park. Both hotels, a seven-story Hilton Garden Inn on the southeast corner of Union and Hernando and a six-story Holiday Inn Express immediately to the east, have Union Avenue frontage.

“We don’t need more of these smaller hotels,” Norcross said at the meeting. “We really need to have larger, more concentrated hotels.”

Those two hotels earned approval from the LUCB, and another proposal for a Homewood Suites at the southwest corner of Second and Vance also passed with an amendment Norcross made for the exteriors to have 80 percent brick to better mesh with AutoZone Park, Fielder’s Square and other nearby properties. The three hotels have a combined 375 rooms and the developers will not seek incentives.

“If I could roll all three of those properties into one, full service 400-room hotel, I would be thrilled because it would have meeting space and other things you would have to attract business into the market,” said Kevin Kane, president and CEO of the Memphis Convention & Visitors Bureau.

Last October, the LUCB approved a four story, 161-room Cambria Inn and Suites at Union and Fourth, just a few hundred feet from the side-by-side hotels. Earlier in 2015, the board approved a 104-room La Quinta Inn and Suites just a couple of blocks east of those sites. The Peabody, DoubleTree and Vista Inn & Suites also face Union Avenue.

“There was a time when we wanted any hotel, no matter what it was,” Kane said.

Readily available incentives have helped create a market with 15 hotels and 3,000 rooms in Downtown Memphis. Kane said that Downtown hotels are running a 73 percent occupancy rate with a $145-a-night daily rate.

Currently, there are 12 hotels proposed or in development Downtown. Kane believes some of those projects will die on the vine, but there’s nothing his organization can do to put the brakes on Downtown hotel development.

“If they’re not receiving any incentives, then at that point it’s a free market and people are free to do what they want to do,” he said.

The Memphis Convention & Visitors Bureau is working off of its Smart Hotel Growth Plan, which lays out that tax breaks, or payment-in-lieu-of-taxes incentives, should be given to hotels that create at least 250 rooms and are located in an area that will grow tourism or convention-related demand.

The bureau isn’t able to grant PILOTs, but the Downtown Memphis Commission has that power and is aligned with the Smart Growth Hotel Plan.

“I think the more inventory you bring online with limited service properties, it will impact the occupancy and rate of the market, which in turn will make market less attractive for a large hotel developer to come,” Kane said.

A large, full-service hotel is part of the end-game in the Cook Convention Center’s planned but tentative $900 million upgrade. Kane said he’s had some interest from large developers, but mostly they’re waiting to see what happens with the convention center. Phase two of the MCVB’s vision includes an expansion of the facility west to Wolf River Harbor, but that’s six to 10 years out with available financing.

“They’re hard to attract because we have the competition with all the smaller hotels,” Norcross told The Daily News. “I think if we can wait for the right hotel, and we can incentivize that hotel, then we’re better off than with three hotels that are spread out without services and amenities that support the conventions we’re trying to attract.

“It’s nice to have that growth,” Norcross added, “but in 30 to 15 years we may wish we had some larger hotels rather than the smaller hotels we’re building today.”

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 23 23 1,365
MORTGAGES 21 21 1,068
FORECLOSURE NOTICES 6 6 196
BUILDING PERMITS 117 117 3,173
BANKRUPTCIES 42 42 795
BUSINESS LICENSES 2 2 331
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0