Colorado Real Estate Journal - June 15, 2016
The hotel industry started to cool in the first quarter, but that’s not alarming considering how hot it was last year. Hotel occupancies and rates hit record levels nationally in 2015, and Denver was no exception, according to Alison Hoyt, senior project manager with STR, who spoke at a recent Hotel & Resort Summit & Expo put on by Otten Johnson Robinson Neff & Ragonetti and the Colorado Real Estate Journal. “You can’t have record growth in rates and occupancy all the time,” commented Mark Darrington, senior vice president of CBRE Hotels/Capital Markets. The Mile High City last year saw “tremendous growth” in hotel occupancy, which now is starting to slow. “Denver is starting to see the impact of new supply,” Hoyt said. The number of hotel rooms grew 3.3 percent in the first quarter, more than twice the national average. The average rate for a hotel room in Denver also increased, but the level of increase is decelerating, she said. “The industry is still growing … but those rates are certainly slowing,” Hoyt said, adding the industry as a whole likely is not headed for a repeat of the last cycle. “A controlled landing is far more likely for the industry than a complete crash.” Denver-based Sage Hospitality, a national hotel company that is developing hotels locally in Denver, Boulder and Fort Collins, plans to be “very, very cautious” over the next 12 months, according to Michael Everitt, Sage chief investment officer. But Everitt said, “Longer term, we think Denver is as healthy economically as any market in the country.” Sage is especially excited about a full-service hotel it is developing with McWhinney in downtown Fort Collins that it believes will “pop through” the rate ceiling in that market, he said. “Fort Collins is definitely on our list as well,” said Mark Younadam, vice president of real estate and development for Hyatt Hotels Corp., who also was among investors who spoke at the hotel summit. “I’m pretty bullish on Colorado Springs,” said Jeffrey Duni, vice president of HREC Investment Advisors, who believes there is a “lot of upside” in that market, given lower prices. Nationally, hotel investors are taking a cautious approach. A growing number, 42 percent, of respondents to the Lodging Industry Investment Council’s annual survey said they don’t believe it’s a good time to develop, while 53 percent said development only makes sense in select markets and product types. The majority of survey respondents said the biggest threat to hotel investment is new supply, according to Kyle Halbrook and Nate Shartar of HREC Investment Advisors, who outlined the LIIC results during the conference. The number of hotel sales was down in the first quarter, as was the average price per room, according to brokers who spoke at the event. “We’re bumping along the top of the cycle, from our perspective,” said Darrington. “There are still a lot of good deals out there,” added Duni. “I think 2016 will still hold up pretty strong after a spectacular 2015.” Hotels are increasingly looking to create experience, particularly to attract millennials or those with a millennial “state of mind.” IHG’s latest brand is EVEN Hotels, whose amenities, menus, etc., are focused on health and wellness. Marriott’s Moxy Hotels targets “extroverted, energetic” consumers. Joe Dreiske, director of membership development for Ascend Hotel Collection, said a hotel that succeeds in one market may not work in another, which is why its network of unique, boutique luxury hotels generates some of the highest average daily rates among its asset class. James Johnson, founding partner of Denver-based Johnson Nathan Strohe, spoke to the rise of independent hotels, saying half of the 12 hotels his firm has in design and construction are not affiliated with a brand. “When we finally look up from our cell phones, we want to be someplace cool, and that’s what independent hotels are all about,” he said. Other News Sage Hospitality and McWhinney selected The Maven as the name for the independent hotel they are developing with Grand American Inc. at the Diary Block on the corner of 19th and Wazee streets in Denver. The hotel is designed to be a lively community gathering place centered around The Alley, a “microdistrict” that will run between Blake and Wazee and house a mix of Colorado retailers, artisans, chefs and cocktail “crafters.” The 172-room hotel will offer a rotating collection of creative art and handmade products, as well as the adjacent Kachina Southwestern Grill, a concept of Sage Restaurant Group. There also will be a 2,300-square-foot ballroom with garage doors that open to The Alley for concerts and other events. “Maven means a trusted expert who seeks to pass knowledge on. We seek to curate adventures in Denver for our guests, beginning with Denver’s exciting Dairy Block,” said Water Isenberg, Sage Hospitality president and CEO. Saunders Construction is the general contractor for the Dairy Block, which was designed by Shears Adkins Rockmore Architects and Johnson Nathan Strohe. Brooklyn-based Crème is designing the hotel lobby. The first hotel at Belmar in Lakewood, a 135-room Hyatt House, recently opened. The six story hotel features apartment style suites for overnight and extended stays.