Hospitable Market

Memphis hoteliers enjoying strong performance, healthy development pipeline

By Michael Waddell

The Memphis area hotel market continues on its solid run of the past few years, led by the Downtown submarket with strong occupancy and room rates. The pipeline for new Downtown hotel projects is loaded, with as many as 15 projects in various stages of development and hotel construction picking up in other parts of the county.

More than 200 hotel industry insiders, including owners, operators, financial investors, attorneys, architects and hotel company representatives, attended the 14th annual Southern Lodging Summit at the Memphis Cook Convention Center recently to learn about local and national trends.

“This year’s conference was one of the best in the history of the Southern Lodging Summit, in my opinion,” said Glenn Malone, COO and CFO at Senate Hospitality.

The largest hotel to be built in Memphis in 90 years is the 450-room Guest House at Graceland, featuring a pool and a covered jacuzzi. (Memphis News File/Andrew J. Breig)

The 100-room LaQuinta hotel is under construction at Union Avenue and Danny Thomas Boulevard. It is expected to open next year. (Memphis News/Andrew J. Breig)

Of the many hotel projects underway Downtown is the 58-room Hotel Napoleon, a conversion of a former office building at Madison and Third.  (Memphis News/Andrew J. Breig)

 

Housekeepers Brittany Batts, left, and Regina Raglin prepare rooms at Hotel Napoleon for guests in the run-up to its grand opening. (Memphis News/Andrew J. Breig)

Hot topics on the agenda, which featured more than 20 nationally recognized speakers, included the strength of the Downtown hotel market, a new proposed Airbnb ordinance for Memphis, and catering to millennials both as hotels guests and employees.

The new Airbnb ordinance was briefly addressed at the Sept. 6 Memphis City Council meeting and is expected to be debated further Sept. 20. Companies doing short-term room rentals through Airbnb would be required to pay the appropriate taxes for companies in the room rental business, including sales taxes and the city bed tax.

“Airbnb is like Uber or Lyft – it’s a new business that had developed pretty rapidly over the past few years, and cities all over the country now are just trying to catch up with dealing with those issues in collecting taxes,” said Wayne Tabor, general manager of the Holiday Inn Memphis-Downtown and president of the Metropolitan Memphis Hotel and Lodging Association (MMHLA).

Last year, the state attorney general ruled that Airbnb is subject to those taxes.

“Our hotel association, we’re not against Airbnbs,” Tabor said. “We think they have full rights to sell their room as they want to do it. We just think there should be a level playing field. If you’re going to sell a room for rent for the night, you should be required to collect taxes and pay taxes just like we are.”

Another hot topic at the summit was attracting and retaining millennials as guests and as employees. In 2015, millennials surpassed Gen Xers as the largest generation in the U.S. labor force.

“Millennials are demanding more things that previous generations only requested,” said Judy King, hotel industry HR consultant and founder and principal of Quality Management Services LLC. “A huge wave of change is coming and has already crashed for some organizations.”

She believes keeping millennials engaged in the workplace by involving them in decision-making as well as offering meaningful rewards and recognition are key areas for companies to focus on. For millennial guests, making sure hotels are equipped with the latest technology is paramount, and Wi-Fi capabilities is critical.

DOWNTOWN RISING

The Downtown Memphis hotel market’s strong performance and its heightened interest from investors also had everyone talking.

So far this year, occupancy rates Downtown are up 1.5 percent to 74.6 percent, and the average daily rate (ADR) is up 4.4 percent to $159. Revenue per available room is up 5.9 percent to $119. From June 2015 to June 2016, Saturday night occupancies approached 85 percent and the ADR was $165.

“You are basically sold out on a lot of Fridays and Saturdays, but the question is: is that sustainable?” said Jan Freitag, senior vice president of Smith Travel Research. “Next year we expect occupancies to not grow. But we’re selling more rooms than ever… so ADR growth is the name of the game.”

Despite the strong numbers, Tabor has seen a bit of a drop-off in activity Downtown over the past couple of months.

“We think it’s a sign of a slowing economy, maybe from a national standpoint,” Tabor said. “It’s a little concerning that it may be turning down a little bit from an occupancy standpoint. I don’t think it’s a long-term thing. September and October look strong coming up.”

A variety of new hotels are on the way to Downtown, as the development pipeline has filled up over the past couple of years. The total number of hotel rooms Downtown could double to more than 6,000 if all of the 15-plus projects were to end up being built. Some are still in the early stages.

“Hotels are being sold and bought by companies wanting to get into the market, and price is probably at a premium right now,” Tabor said. “I think that’s probably going to continue for the next few years, depending on how much new inventory we get in the Downtown market.”

The many projects underway include the 58-room Hotel Napoleon, a conversion of an old office building on Madison Avenue and Third Street scheduled to open this week (Sept. 14), and a 100-room La Quinta under construction on Union Avenue at Danny Thomas Boulevard that is set to open next year.

Across Union Avenue from AutoZone Park on the site of the former Greyhound bus station, a 140-room Hilton Garden Inn project has been approved and franchised, and financing is being put in place. The hotel is scheduled to open in 18 months.

Next to it on the corner of Fourth Street and Union, plans for a 115-room Holiday Inn Express have been approved by the city, franchising has been approved, but financing for the project isn’t finalized yet, industry sources said.

On Union Avenue between Fourth and Danny Thomas, Choice Hotels International bought a parcel with plans to build a Cambria Suites. Choice is looking for one of its investors to partner with, but it has not happened yet.

On the corner of Second Avenue and Vance, Hilton has approved a Homewood Suites with roughly 110 rooms.

And on the south end of Main Street, the old train station is being converted into a 120-room Hilton Curio. The former apartments in the building will be renovated.

“I think the Hilton Curio is going to be a great home run for Downtown Memphis,” said hotel consultant Chuck Pinkowski, principal of Pinkowski & Co.

He said the project, which will anchor the south end of Main Street, is a very complicated deal from a financing standpoint and also from a design standpoint.

He sees hotel companies pushing harder for development and adding more brands for developers to choose from.

MORE DELIVERIES COMING

Outside of Downtown, a dual-brand hotel – with a Hilton Garden Inn and Home2 (also a Hilton product) under one roof – will be built in East Memphis at Poplar Avenue east of Kirby Parkway, where the 10-acre, $90 million TraVure mixed-use development is planned. The project will include a five-story office building, parking lot, retail component with commercial services, and a restaurant.

A new Hampton Inn and Suites is being constructed in Germantown at Germantown Road and Neshoba, and it should open early next year.

And the largest hotel built in Memphis in 90 years, the $92 million, 450-room Guest House at Graceland will open in Whitehaven in October. It will become one of only a handful of hotels of its size or larger in the Memphis area that can accommodate larger tourist groups or conventions.

The Memphis market currently includes approximately 240 hotels and 22,000 hotel rooms, but only 30 or so hotels offer more than 100 rooms, making booking hotels for large tourist groups a logistical challenge.

The hotel development pipeline is also heating up around the country, with approximately 160,000 new rooms under construction.

“The interesting thing is that we’re not building ballrooms; we’re just building limited service hotels. They’re workhorses,” Freitag said. “On the flip side, where are we going to have group meetings? We need ballrooms, and I think as an industry we’re painting ourselves into a little bit of a corner.”

Tabor would also like to see some future development Downtown of a couple of 400-plus room hotels with ample meeting spaces for convention and visitor groups.

Nationally, the hotel industry is seeing record occupancies, or more rooms sold than ever.

“The industry is doing really, really well, except we don’t see any pricing power. Room rates are only up 3 percent,” Freitag said.

Average daily rates (ADR) nationally are up 3.1 percent to $123, revenue per available room (RevPAR) rose 3.1 percent to $80, and occupancy has increased 0.1 percent to 65.1 percent.

Two big markets are dragging down overall industry averages: New York City with a 3.2 percent RevPAR decline and Houston, with a whopping 8.7 percent decrease year-to-date. Excluding their numbers, RevPAR for the entire rest of the country has increased 3.6 percent year-to-date.

“Do we think that there is another 24 months of positive RevPAR growth? Yes, absolutely,” Freitag said.

He believes the increases will be moderate, not amazing, both nationally and locally.