Hotel Online  Special Report

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Clevelandís Lodging Market: A Slow Climb Back

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by: David J. Sangree, MAI, CPA, ISHC and Joseph Pierce
February 2005

Nationwide, the hospitality industry rebounded in 2004 from what had been a two year slide following the events of September 11, 2001. In 2004, Cleveland remained a buyerís market for the lodging industry, but significant improvement in occupancy levels coupled with modest improvements in ADR provided the marketís first increase in RevPAR since 2000. The prospect for continued improvement in 2005 of both occupancy and rate remains good.

Occupancy and ADRís

The improvement in occupancy that was seen in 2003, increased its momentum in 2004 without the rate cutting that had occurred over the past three years. The growth in demand for hotel rooms in the market overall outpaced the new supply of hotel rooms for the second consecutive year. For the first time since 2000, however, average daily rate climbed for the market overall. The following chart shows the Cleveland MSA historical lodging performance and our projected performance for 2005. The Cleveland MSA includes hotels located in Cuyahoga, Ashtabula, Geauga, Lake, Lorain, and Medina counties (22,046 rooms).
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For 2005, we project a moderate increase in demand coupled with a smaller increase in supply which should allow for an improvement in occupancy levels for the overall market. We project commercial and leisure transient demand to increase, while group demand will record a slight decrease due to fewer conventions and events. The average daily rate in the market is projected to grow at a level similar to inflation but below national projections.

The good news was not uniform throughout the region. The following graph illustrates the varying occupancy performance of the Cleveland MSA submarkets.
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The Southwest suburban markets, centered around Cleveland Hopkins International Airport, showed the greatest growth followed by the Downtown hotels. The Southeast suburbs lost ground in 2004 and continue to operate below the average occupancy for the region. 
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Downtown hotels are clearly the rate leader within the Cleveland MSA, but they have yet to stabilize their average rate, declining slightly compared to 2003. Likewise the struggling Southeast suburbs lost ground in rate, in addition to their occupancy woes. 

New Supply

As with 2003, few hotel properties entered the Cleveland regional market in 2004 and they all opened in suburban markets; the 139-room Hampton Inn and Suites in Beachwood, 109-room Geneva State Park Lodge in Geneva on the Lake, and the 62-room Hawthorn Suites in Seville. In addition to the new properties, The Bertram Inn & Conference Center expanded from 162 rooms to 225 rooms in 2004 and added an Amphitheatre to its suburban Aurora location. As the overall market continues to struggle with absorbing the overbuilding of recent years, the limited development has been a positive aspect to the Cleveland market. New developments in 2005 are somewhat more aggressive as over 480 rooms are anticipating opening, all in Clevelandís east and southeast suburbs.

The following chart depicts recent and planned hotel supply additions in the greater Cleveland area since 2000.

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Regional Issues

In 2004, the greater Cleveland area suffered a number of setbacks, but the year was not without its successes as well. A proposal to increase the sales tax to finance a new convention center was pulled from the March 2004 ballot before voters could weigh in on the issue. Although the business community continues to support the development of a new center, political leaders felt they had insufficient time to inform the public on the need for the facility and its benefits. The city created the Convention Facilities Authority in 2004, which has a mission to develop a new center. Downtown is left with its dated 375,000 square foot underground Cleveland Convention Center as well as atypical meeting environments such as the Cleveland State University Convocation Center and Gund Arena. In the suburbs, the International Exposition Center with over 1 million square feet of meeting space continues to have an uncertain future. Located adjacent to the Cleveland Hopkins International Airport, the center was slated for demolition in favor of the airportís expansion. However, with the reduction in air travel, it may not be necessary to expand through the I-X Centerís property and thus the structure may remain. Unfortunately, this converted tank plant, like the Cleveland Convention Center, lacks up-to-date amenities sought after by meeting planners. A new convention center to replace either or both of these facilities continues to lack regional financial and political support, and seems an unlikely prospect for the near future.

Despite the limitations on conventional convention space, the Cleveland market experienced growth in the group meetings market segment. The following table presents historical meeting activities in the Greater Cleveland area.
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The number of meetings hosted in Cleveland jumped in 2004 to its highest mark since 1999, increasing 10.2% over last year. Unlike the previous two years when the number of meetings increased but attendance at those meeting declined, 2004 saw an increase in meeting attendance for the first time since 2001. Although the average attendance at meetings continues to lag behind years past, it is encouraging to see the growth in attendance in the past twelve months.

The following table lists the top five conventions planned for the Cleveland area for 2005.
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The regionís sluggish economy had an exclamation point placed on it in 2004 when the Census Bureau ranked Cleveland the nationís poorest big city. In the past four years, Cuyahoga County has lost 63,900 jobs or nearly 8.1% of the total jobs in the county. Manufacturing job numbers are even worse, with Cuyahoga County losing 21.4% of that job category during the same period. In late 2005, Ford Motor Company will close its Lorain Assembly Plant, a move that will cost the jobs of 1,200 workers. Not all sectors have contracted however, as health care and financial services job categories continue to show net positive job growth. In addition, International Steel Group reaffirmed its expansion plans for Cleveland, following its recent sale to Mittal Steel Co. Also, Charter Steel is investing $90 million dollars in an expansion which will generate 140 manufacturing jobs.

Clevelandís Mayor Jane Campbell has thrown her support behind the development of a casino in the downtown area. The specifics of the program are yet to be worked out and a number of obstacles will need to be overcome before a casino can be built. Ohio voters would need to approve casino gambling in the state before it could happen. Twice before in 1990 and 1996, voters have rejected such proposals by almost 2-to-1. However, the mayor has proposed a change in the state constitution to permit communities the right to decide whether or not to permit gaming. She is aiming for getting the proposition on the November 2005 ballot. Most lawmakers still consider the proposal a long shot.

Regional Attractions

Regional attractions have on balance been a better performer in the Cleveland market than that of the other sectors, but they too have had challenges. In 2004, the Cleveland Browns football team played before sell-out crowds each home game despite its poor performance on the field, the resignation of its coach in mid-season and general disorganization in the teamís front office. Competitive play by the Cleveland Indians baseball team through most of the 2004 season was rewarded by an increase in attendance for the first time in three years. The Cleveland Cavaliers basketball team, having played to near empty arenas in past years, now performs before sell-out crowds, thanks to the performance of its all-star LeBron James. 

Six Flags Worlds of Adventure, the largest theme park in the Cleveland MSA, was sold in April 2004 to Cedar Fair the parent company of Cedar Point and renamed Geauga Lake. The 2004 seasonís attendance fell to a little over 700,000, a 74% decrease from 2001ís attendance and lost $1.8 million in the prime July to September period. In an attempt to lure people back to the park, adult admission price will be reduced by $10 to $24.95 in 2005. In addition, park officials announced plans to build a 20-acre waterpark named Wildwater Kingdom, located on the former Sea World side of the park. Construction on the first phase of the waterpark is scheduled to open by the 2005 season and will include a 60-foot tall tornado slide, activity pool, and a childrenís area with a multi-story interactive play structure. The second phase will include a 38,000 square foot wave pool, an adult pool with whirlpool spas, a swim-up bar and a number of additional water slides. The estimated cost of the expansion is $26 million.

Cedar Point, the regionís most popular amusement park, also experienced a decline in attendance, dropping to 3.2 million in 2004 from 3.3 million in 2003. Much of the attendance decline was attributed to the lack of new attractions and weather issues. In 2005, the park is investing $10 million on park upgrades and the introduction of a new thrill ride maXair. The swinging pendulum movement of the ride will take the rider 140 feet high and create a feeling similar to weightlessness.

For the third consecutive year Cleveland hosted the Gravity Games. In 2003, the games held their first live broadcast from Cleveland featuring the freestyle motocross competition. The event was the highest-rated, action sports television event in the United States. In 2004, the games doubled the broadcast coverage with more than 20 hours of event coverage. In 2004, Cleveland hosted the International Childrenís Games and Festival, the first time the games have ever been held in the United States. About 2,200 young athletes from more than 50 countries participated in a variety of events. Cleveland also hosted the Vice Presidential Debate in October at Case Western Reserve University which was one of the most watched debates of the political season. The events combined to present Cleveland on a world stage which provides long-term benefits including international business opportunities. 

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David J. Sangree, MAI, CPA, ISHC is President of Hotel & Leisure Advisors, a national hospitality consulting firm specializing in appraisals, feasibility studies, and impact analysis for hotels, resorts, waterparks, and other leisure real estate. When this article was published, David Sangree was Director of Hospitality Consulting with US Realty Consultants and a Principal in the Cleveland office. 
Contact:

David J. Sangree, MAI, CPA, ISHC
Hotel & Leisure Advisors
14805 Detroit Avenue, Suite 420
Cleveland, OH 44107-3921
216-228-7000 Phone    216-228-7320 Fax
dsangree@hladvisors.com
www.hladvisors.com
 
US Realty Consultants
216-221-9191 Phone     216-221-9097 Fax 
www.usrc.com
 

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Also See: Hotel Capitalization Rates Drop Further / May 2005
Clevelandís Lodging Market: A Slow Climb Back / David J. Sangree & Joseph Pierce/ February 2005
Indoor Waterpark Resorts Continue Impressive Growth in Ď05; a Viable Segment of the Travel / David J. Sangree / January 2005
Indoor Waterpark Resorts Expand Nationwide / David J. Sangree / April 2004
Cleveland Lodging Market at Bottom with Improvement Predicted / US Realty Consultants, Inc. / January 2004
Hotel Capitalization Rates Drop Again / David J. Sangree, MAI, CPA, ISHC / April 2004
Appraisal and Financing of Indoor Waterpark Resorts / David J. Sangree / October 2003
Hotel Capitalization Rates Drop / David J. Sangree, MAI, CPA, ISHC / February 2003


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