Putting the 'hot' in hotels (exclusive web content)

exclusive web content

Charles Molineaux

February 1, 2008

Web exclusive - Atlanta hotels go green

Web exclusive - Atlanta's competition

"If we do our job right, they will come," proclaims Hal Barry. "Atlanta's on a continued roll. Atlanta is destined to grow in a big, big way."

Chairman of the Barry Real Estate Companies, Barry was the beaming master of the house at the posh December topping-off celebration for his 28-story W Hotel and condominium tower in Downtown, a high-end boutique project which may well epitomize the coming direction for Atlanta's hotel business.

Industry watchers share much of Barry's optimism, anticipating steady growth for the field in 2008, although not without some caveats over a complex array of upcoming changes and challenges.

A dramatic surge in new construction and conversions will bring additional hotels in the near future, raising concerns about a margin-dampening excess of rooms. But the new projects' emphasis on boutique and luxury products offers upscale breadth previously lacking in the market, as well as the prospect for a better return from such pricier accommodations.

Meanwhile, Atlanta's hotel-central, Downtown, continues its revitalization with leisure offerings such as the Georgia Aquarium, the new World of Coke and a hoped-for civil rights museum while dealing with safety and perception issues on its streets. The industry's major symbiotic partner, the Georgia World Congress Center, finally may be hitting its stride, seven years after its expensive expansion.

But all the while, hoteliers and analysts alike keep a wary eye on the overall real estate world and the economy, which alternately look promising and precarious. hotel_1

High stakes

With some 92,000 rooms in more than 750 hotels and motels throughout Atlanta, hospitality ranks second only to agribusiness in importance to Georgia's economy, employing close to a quarter million people in the region, according to the Atlanta Convention and Visitors Bureau (ACVB).

After years of gyrations, a post-September 11 slump, then a short-lived post-Katrina windfall, the forecasts for the coming year anticipate a more even keel for hoteliers.

"[We won't] see the profit growth [of] 2006 or even 2007," cautions Debra Cannon, director of the Cecil B. Day School of Hospitality at Georgia State's Robinson College of Business. "We've been at the high end of the wave. There are signs we're starting to taper off. Still, my prediction for 2008 is optimistic."

PKF Consulting, an Atlanta management consulting firm specializing in the hospitality industry, concurs. Its "Hotel Horizons" report foresees an occupancy rate of 64.3 percent in 2008. That would be an increase of 0.8 percent from 2007, after a 1.5-percent drop in occupancy from 2006 to 2007.

"It's been probably one of the best four-year runs that Atlanta's had in the past 20 years," says PKF Senior VP Scott Smith. "It's been phenomenal, but now, that growth rate is moderating toward historical long-term averages."

PKF's numbers call for robust improvement in hoteliers' sales strength, with a 4.1-percent increase in average daily rate and a 4.9 percent jump in revenue per available room. "It's good news," Smith says. "There's enough demand out there for hoteliers to increase the room rate above the rate of inflation."

Hoteliers and industry analysts also see an automatic uptick in traffic from America's Mart expansion, Downtown's home to the gift and apparel marketplace. When it's Building Two West Wing opens in July, an additional 1.5 million square feet will be added to the complex, bringing the total campus to more than 7.5 million square feet.

The industry does begin 2008 with something of a head start. The ACVB reports bookings of almost 1.3 million room/nights, a 5-percent increase from the same time a year ago. "That sets us up for a good year," says ACVB VP Mark Vaughan. "Being ahead of the game going in, you're not playing catch up to exceed where you were the year before."

Ebb and flow

Hoteliers face a major potential pitfall in 2008 if any national economic hiccup interrupts the flow of guests, business guests in particular. Mark Woodworth, PKF's executive VP, attaches that warning to the firm's cautiously positive prognostications. "There is some downside risk to our forecast because of the generally fragile state of the economy right now," he says. "Our figures call for a healthy correction scenario. The debate continues on whether a recession is around the corner or this is just a correction."

Vaughan acknowledges the concerns, but looks hopefully at the strong booking numbers so far. "Our outlying areas are traditionally tailored to business travel, the hotels around the airport, Buckhead, and Midtown," he says.

"We'd be in really bad shape if we were behind pace going into an uncertain year on the business travel picture. Being ahead of [last year's numbers], I'd look at it more of an insurance policy going forward." hotel_2

The perils of a serious slowdown remain a stark lesson for the Georgia World Congress Center. The facility completed its $220-million expansion, adding 420,000 square feet of exhibit space in 2003, just as the travel and convention industries were struggling after September 11. "That had a disastrous effect on the overall travel industry," recalls Executive Director Dan Graveline, "particularly the convention industry. We were among several cities with a major expansion and we hit that recession right when we opened our expansion."

Instead of business expanding, trade show bookings declined 13 percent and attendance withered 24 percent from 2001 to 2002. The center struggled, barely turning a profit in 2004. It was only in FY 2007 that attendance figures finally regained and surpassed their 2001 levels. Its 2008 estimates predict a healthy 60 major trade shows and conventions, up from only 39 at the low point in 2002.

"We're just now really beginning to feel the full impact of the expansion," Graveline says. "Each year looks a little better than the one before, with 2010, '11 and '12 looking very good. We're definitely on a flow, not an ebb."

Woodworth says the current take remains hopeful, if careful. "If we're surprised by a serious downturn, a lot will change. Everything's predicated on expected moderate economic growth in Atlanta next year."

Up goes the neighborhood

Just how strong is Atlanta's hotel market? Regional developers are about to give it a telling test with a blitz of construction on new hotels. The ACVB reports a stunning 89 projects planned for the metro area, a potential increase of 9,100 rooms or 10.2 percent to Atlanta's inventory.

That's assuming, of course, all are actually built. This year began with 19 properties actually under construction, which will add 2,100 new rooms, a 2.3-percent increase. Many aim for boutique, luxury, or ultra luxury niches.

Two high-profile names, the 102-room TWELVE Hotel and Residences in Midtown, and the 127-room Ellis Hotel in the newly renovated historic Winecoff Hotel building on Peachtree Street, opened last fall.

This summer, the Kessler Collection will break ground on its 275-room Grand Bohemian Hotel, art gallery and spa project just north of the Perimeter in Sandy Springs, scheduled for 2009 completion. hotel_3

Barry's 237-room W Hotel is scheduled to open late this year as part of his Allen Plaza mixed-use development in Downtown. It will be Atlanta's only W built from the ground up and the only one with condos, but just one of a series of Starwood's new W branded hotels in town. It will be Atlanta's only W built from the ground up, but just one of a series of Starwood's new W branded hotels in town. Midtown's former Sheraton Colony Square is undergoing a makeover and is due to open this month as a 466-room W Hotel, while the new, 291-room W Buckhead Hotel (formerly the Crowne Plaza) is expected to start operations this fall.”

Just off Centennial Olympic Park, Hilton's new Downtown boutique property, the Hilton Garden Inn, is planning to open its 242 rooms in late March.

Beyond its W properties, Starwood is adding 150 luxury rooms (and 50 condos)
in a new St. Regis hotel under construction in the heart of Buckhead, now expected to open early next year. The company's commitment to Atlanta impresses Harvey Rudy, senior director of development for Barry Real Estate. "Atlanta's been a huge hub for Starwood, with the Westins, the Sheratons. Now they're doing the Ws and the St. Regis in Buckhead. They're quite bullish on Atlanta right now."

For its part, Rosewood Hotels plays up Buckhead's new ultra-toney cachet with its upcoming Mansion on Peachtree luxury hotel. Just a few doors from Lenox Square, the hotel marked its topping off in September. It's slated to open its 127 rooms early next year as well.

Also next year, Downtown's historic Carnegie Building is scheduled to complete its transformation into Atlanta's second Hotel Indigo, with 155 rooms, and Kimpton Hotels' Hotel Palomar is aiming for an early 2009 opening with 230 rooms.

At least five more hotels with 1,342 new rooms are on tap to open their doors in 2010, including a Hard Rock Hotel just west of Centennial Olympic Park; the luxury Mandarin Oriental Hotel in Midtown; and the 414-room Loews Hotel, also in Midtown.

The sudden proliferation of new product raises the prospect of an unsettling surplus, but analysts suspect the luxury and boutique offerings only will add new range to lodging choices in a landscape dominated by larger mass-appeal properties.

"This has caused a question of whether we're getting into an oversupply situation," Cannon observes. "[But] for a large city, we did not have an abundance of high-end hotels. We're really seeing growth in the super luxury brands."

Smith calls it a segment with plenty of space, and a fundamental change in the overall look of the city's lodging picture for the business traveler.

"It used to be where you had the Four Seasons as the market rate leader. It was pretty much the only luxury property, followed by the two Ritz Carltons, and that was about it. Now you have more luxury hotels coming into the market. These higher-end hotels are a trend other cities already are seeing, whether it's New York, D.C., Miami, Dallas, Denver or L.A."

"It's more sophistication," says Barry, "not an attempt to be funky. Lifestyle has moved away from stuffy stuff and more toward experience level. Everybody wants to be entertained and we're going to entertain everybody."

Graveline insists there's a clamor for diverse offerings. "Our customers tell us they're delighted to see variety in the inventory," he says. "When you bring a national convention with 20,000 or 30,000 people, they run the gamut in taste and appeal. Some like the big-box hotels. Some like the smaller boutique, even though more expensive, specialty service hotels. Some like inexpensive. Some like very expensive."
hotel_4

Big old dogs, big new tricks

While new projects vie for elite-level business, Atlanta's traditional mainstays enter a new year of heavy investment to upgrade their own presentation ... sometimes literally beyond recognition.

In the city's highest-profile update, Downtown's Marriott Marquis will complete its $138-million renovation in July. The hotel's cavernous atrium now salutes guests with a towering neon sail in shifting colors that rises above the excruciatingly cool lobby bar Pulse, the Sear restaurant and High Velocity sports bar. A quick turn also reveals a Starbucks to complete the package.

"It's absolutely time for a reinvention of the Marquis," says GM Erica Qualls. "The entire footprint of the hotel has been repositioned with 1,653 rooms renovated, all new restaurants and bars, in addition to all new meeting space, public space, elevator cores and room corridors." And with its new and redesigned ballrooms, Qualls says the Marquis will be able to house and feed two large groups simultaneously within the confines of the one hotel.

Vaughn perceives the process as ongoing, and crucial. "The Omni Hotel's expansion has been key and critical to our convention business," he says.

"The Sheraton Atlanta also has gone through major renovations, so our hotel product in town is superior and getting better."

"That says a lot about [the industry's] confidence in this market," says Ed Walls, GM of the Westin Peachtree Plaza and chairman of Atlanta's Downtown Hotel Council.

The city's second-biggest hotel, the Hyatt Regency, is in the early stages of its own renovation, and likely will continue well into 2010. The job ultimately will involve an update of the entire building, including its 40,000-square-foot grand hall; 10,000-square-foot ballroom, and all 1,250 guest rooms.

At the Hilton Atlanta, GM Brad Koeneman says extensive renovation is on the way after the hotel's acquisition by Westmont Hospitality Group last June freed up capital for major work. Involving all 1,226 of the Hilton's rooms, the project will start later this year, although it's currently in its "design phase."

"There's no question that it's positive," Walls continues. "The companies are reinvesting in their products and there are unannounced similar numbers at a lot of the major hotels."

The mondo condos

A recurring theme runs through this year's wave of Atlanta hotel projects – the telling suffix "and residences." Growing numbers of them include condominium units. While luxury condos long have been a fixture in such institutions as the Four Seasons, the local field of hotel/residence projects is due for rapid expansion as the current crop of developments matures. It was his condo offerings that Barry emphasized as he topped off his Allen Plaza W project.

The St. Regis, The Mansion, The Stratford, the Mandarin, The Palomar, the 1 Hotel and the multiple W projects all include condominiums with their guest rooms. With prices frequently in the millions, the units offer a permanent lifestyle of luxury hotel style for residents. They also offer instant, established cachet for even the newest development.

"You have a brand associated with the condominiums," Smith says, "and that denotes a certain amount of luxury, services and amenities you wouldn't usually have in a typical condominium project. So the condominiums are able to get maybe a 20-40 percent price premium over similar condominiums in the market."

The model also provides a valuable funding mechanism for developers to get their projects out of the ground. Says Smith, "You're able to get your return that much quicker because you're selling your residential units, so you're able to offset some of the debt payment on the hotel with the proceeds from the condominium. So it absolutely helps."

The dual business model of home sales and hotels also marries the two fields' traditional stability and flexibility. The condominium sales can help level out the hotel world's seasonal swings and gyrations, while the hotels' adjustable rate structure allows for maximum revenue during peak travel seasons, major events and other times of high demand for hotel rooms.

But a recent new downside is that the "stability" of residential home sales is looking substantially less stable. The sub-prime mortgage crisis hit an Atlanta real estate industry already leery about a possible glut of condominiums. "We'll have our ups and downs," Barry admits. "This sub-prime debt problem has hit housing, but overall Atlanta is strong."

Smith sees the new developments as resistant, if not immune. "There does seem to be an oversupply of condominium development in the Buckhead/Midtown area," he says. "But it typically doesn't affect the luxury market that much. It could affect projects in the short term, over the next two or three years."

Unwelcoming committee?

While hotels seek to bring new guests into Atlanta, particularly Downtown, they also confront concerns that threaten to chase guests out. "Every day there's somebody in town who's getting hassled unnecessarily by an aggressive panhandler," Walls says. "That one thing alone can change a lot of the perception of visitor safety."

Cannon considers it an issue, although how big an issue is open to debate, and she speaks from first-hand experience. "I work downtown," she points out. "I'd be speaking from rose-colored glasses if I said it didn't exist. Our visitors know it exists. I hope we can do a better job and make this not only a friendlier city for visitors but also one where they're not intimidated from going out on the streets."

Walls believes the city has made strides, but the issue remains a work in progress. "It's not fair to have our associates get off of MARTA or come from parking lots and feel unsafe. We want to make sure our customers are not walking from the World Congress Center and being hassled by, as we like to call them, ‘unsolicited service providers.' "

GSU has been preparing its second annual study of visitor perceptions of Atlanta. The first survey found panhandling to be an issue, but just one among many others, such as cleanliness or ease of getting around. Vaughan says the city has made substantial progress already. "Is this a major metro city that's going to have its challenges? Absolutely. But Downtown Atlanta is as safe as it has ever been and it's going to get better."

Both Vaughan and Walls point to the Atlanta Police Department's deployment of 60 beat officers to patrol Downtown's streets, as well as the Ambassador Force teams sent out by Central Atlanta Progress and the Atlanta Downtown Improvement District, who not only function as on-street tour guides, but also as a mobile neighborhood watch.

"I started in this city in 1998," Vaughan declares, "and it has turned around unbelievably in the last 10 years public safety wise. Our city leadership has been focused on it. Our police chief has been focused on it. They realize and they know what a very valuable part of the city's economy the tourism industry is. We've got to get people to come back over and over again and they're not going to do that unless they feel good."