VOL. 9 | NO. 19 | Saturday, May 7, 2016
EMPHASIS: Commercial Real Estate
Memphis Consultant Says Airport Area ‘Gone’ for Hotel Development
By Madeline Faber
One of the last remaining hotels near Memphis International Airport has sold in foreclosure for the second time in less than five years.
The Holiday Inn near Memphis International Airport has gone into foreclosure twice since 2011 in spite of millions of dollars being invested. (Memphis News/Andrew J. Breig)
Chuck Pinkowski, a local hotel consultant with Pinkowski & Co., said that a multimillion-dollar renovation couldn’t save the Holiday Inn from a declining hotel market.
“Not just on its way out, it’s gone,” Pinkowski said of the area that surrounds the Memphis airport.
Decades ago, it was a strong commercial market for hotels. As recently as 30 years ago, Memphis International Airport managed two hotels, totaling 260 rooms, on airport property. Other branded hotels nearby flourished.
With business moving to the core of the city – FedEx Corp. moved its World Headquarters east to the edge of Collierville – and further disinvestment, hotels in the area were either shut down or razed. “Or they’re on life support,” Pinkowski said.
Decreased activity at Memphis International, in part due to Delta Air Lines Inc. removing one its U.S. hubs there, also contributed to the decline of the hotel market. At its peak, the airport saw as many as 300 flights a day. While airport activity is trending upward since the dehubbing, it only sees around 70 daily flights.
“I'm not saying all those passengers were staying in the airport area, but that's got to have some really negative effect on the area,” Pinkowski said.
One of the last hangers-on, the Holiday Inn at 2240 Democrat Road in the Nonconnah Corporate Center, has seen its fair share of troubles.
The Holiday Inn was originally a Hilton Hotel. It opened in 1973 with 300 rooms in the main building and 100 rooms in an adjacent building. Over the years, the property lost and regained franchise flags. It operated as a Sheraton, Best Western and as the independently owned Memphis Airport Hotel & Conference Center, Pinkowski said.
That independent owner, Riya Parikh Memphis LLC, defaulted on a loan through PNC Bank in 2011. The property landed in its first foreclosure auction, where Alpha Hospitality Ventures LLC purchased it for $4.4 million.
Alpha, an entity of New Jersey-based Delaware Hotel Group, took out several loans in the less than five years it owned the property – a $4 million open-end loan through Cecil Bank at the time of purchase in July 2011, two loans totaling $6.6 million through Cecil Bank in March 2012, and a one-year, $10 million bridge loan through Middle Patent Capital LLC last year.
When Alpha defaulted on the bridge loan, the hotel landed in foreclosure again, with Middle Patent purchasing it for $10.6 million in a March 16 foreclosure sale.
Middle Patent Capital is an entity of New York-based Trevian Capital, a direct bridge lender for commercial real estate.
Trevian mentions the $10 million Memphis loan on its website, stating it was a first mortgage “used to pay off existing matured and defaulted first and second mortgages, and to pay off various liens and other obligations that resulted from a stalled yet completed $5,000,000 property improvement plan.”
The company could not be reached for further comment by press time.
“That’s pretty bad and pretty stupid to take that kind of financing,” Pinkowski said of Alpha’s $10 million bridge loan.
Alpha had tried to turn the property around, launching a multimillion-dollar renovation. Completed in 2014, the changes included a new façade and signage, upgraded and refurbished guest rooms, a pool and other amenities. The smaller, 100-room building was mothballed, and only 257 rooms saw renovations.
With the significant investment in upgrades, Alpha secured a Holiday Inn flag for the hotel.
“The rooms looked pretty nice, but I don’t know if it ever did any business,” Pinkowski said. “There's got to be a reason for why it sold for so cheap. Because they weren't doing any business and it's not worth any more than that.”
Pinkowski said the $4.4 million that Alpha Hospitality paid for the 400-room property in foreclosure equates to pennies on the dollar in the hotel world. For comparison, the 235-room Marriott at Poplar Avenue and Interstate 240 sold for $32 million last year.
Following the renovation, Alpha was able to unload the property for more than twice the purchase price, but it still doesn’t amount to much in an undesirable market.
“If you had a 250-room Holiday Inn that was in decent shape, and you put it Downtown or in East Memphis or Southaven, it probably could be profitable,” Pinkowski said. “Certainly, it would do better than what it's doing on Democrat Road.”
Considering its 33,000 square feet of flexible meeting space and a 10,800-square-foot ballroom, the five-story hotel would seem like an attractive facility for business users.
Pinkowski said that’s not the case, as business visitors are more likely to drive inside the I-240 loop or across the state line to stay in some of the 3,000 hotel rooms in Southaven.
“I can't see why anybody would invest in a hotel in that area, now or in the near-term,” Pinkowski said.