Dec. 18, 2007 - Kansas City area developers are keen on pursuing mixed-use projects these days, and a prominent part of the mix besides retail and office space often includes a hotel -- or two.

All around the metropolitan area, from the suburban edges to the urban core, about 3,400 hotel rooms in mixed-use settings have been proposed in the past year or so. That is roughly the equivalent of four Downtown Marriotts and would increase the overall supply of about 30,000 hotel rooms in the metropolitan area by about 10 percent if all were built.

The proposals include two hotels in the Park Place development in southern Johnson County; a 200-room hotel as part of the Bass Pro project in eastern Jackson County; a luxury hotel at Briarcliff in the Northland; and several hotels at The Legends shopping area in western Wyandotte County.

Several proposals are being pursued in and around the Country Club Plaza, including a boutique hotel under construction at the West Edge development.

Granted, probably not all of the proposed hotels will be built, particularly if the credit squeeze bleeds from the housing market into various forms of commercial real estate. But for now, at least, the trend toward building hotels remains strong.

"It seems to be something being brought in now, and it makes total sense," said Anita Kramer, senior director of retail and mixed-use development at the Washington-based Urban Land Institute. "Why not bring a hotel to a place where there's the hustle and bustle of other activity?"

There is a market for more hotel rooms in general as the hospitality industry continues its comeback after the downturn prompted by the Sept. 11, 2001, terrorist attacks.

Metro Kansas City averaged a 2 percent growth in room demand through the first nine months of the year, with a 4 1/2 percent jump in the third quarter, said Jeff Marvel of Marvel & Associates, a Kansas City-based hotel consulting group. The average occupancy is 60 percent, a figure that includes all hotels regardless of their location and condition.

Marvel is projecting that the year will finish with room demand up 3 percent. At that growth rate, he said the Kansas City market can absorb about 900 new rooms a year.

Downtowns, with their historic intertwining of shopping, business and recreation uses, were the original mixed-use developments, and hotels have always been included in that stew of activities. In Kansas City, the practice of including hotels in the mix of a single development dates to the Country Club Plaza in the 1920s and Crown Center in the 1970s.

"Having a hotel as a component of a mixed-use district is certainly nothing new," said Jeff Alpert, the co-developer of Park Place in Leawood.

Park Place, a 30-acre development being built at 117th Street and Nall Avenue, includes two upscale hotels in its mix of restaurants, shops, condominiums and office space. The first hotel to go up will be a 193-room Aloft, a luxury hotel operated by Starwood Hotels through its W Hotels subsidiary.

The Aloft is scheduled to open by the end of next year. The second hotel, a 207-room facility under the Element flag, operated by the Westin subsidiary of Starwood, is scheduled to open in early 2009. They are the first hotels to be built in Leawood.

"The key is the additional population it adds to our development," Alpert said. "It brings additional business to our restaurants and retail, and it becomes an amenity for other users, including office tenants with out-of-town visitors."

Alpert was surprised at the strong interest from people wanting to build hotels when the project was being planned.

"We weren't expecting interest from hotel developers for a number of years," he said. "But in the last 18 months the local hotel industry has turned around, and we had a number of hotel operators express interest."

Presidian, a San Antonio-based hotel developer run by H. Drake Leddy, liked the location so much that it suggested building two hotels. Park Place is close to the Sprint Nextel operational headquarters and adjoins the Leawood Town Center development.

"We shifted our master plan to include two hotels," Alpert said. "From a developer's perspective, it becomes a user of ground and a revenue generator."

Among the hot concepts being pursued for mixed-use projects are boutique hotels. They are unique facilities that emphasize sophisticated design and outstanding service.

"What's come out are edgier, more boutique-type projects that don't exist in the market," said Ray Braswell, a consultant who helped land a hip hotel operator for the West Edge development. "If you're from out of town coming to Kansas City, you want to stay at a cool place."

Stand-alone hotels are often more difficult projects to finance, according to Marvel. When blended into a larger mixed-use development, a hotel becomes part of a broader real estate portfolio that spreads the benefits and risks.

"From a real estate risk perspective, they're probably the highest," the hotel consultant said. "There's no long-term lease, you're selling rooms by the night, and it's sensitive to market changes."

But a hotel, anchored to the relative stability of an office project and the slightly more volatile returns of retail, can be a real revenue generator for a developer when times are good.

"You have a higher rate of return, and the downside is gentler," Marvel said.

Including hotels in mixed-use developments also makes better use of parking, particularly expensive garage parking. Hotel customers tend to use parking in the evenings and overnight, while office users and shoppers occupy the spaces during the day.

"There's an opportunity for a lot of efficiencies, particularly parking," Marvel said.

Hotels in mixed-use developments can often be built as limited-service facilities because of the proximity of restaurants and other amenities.

"A mixed-use setting creates an ideal situation for hotel guests," said Brad Wiens, vice president of True North Hotel Group in Overland Park. "Most of the time, you'll see a limited or select service-type hotel, not full-service. It's very conducive for a guest to walk to different restaurants or maybe buy a tie or any number of services."

Wiens said the popularity of hotels in mixed-use developments is a national phenomenon.

"I was at the International Council of Shopping Centers meeting recently, and there were a lot of hoteliers at the show looking for sites," he said.

The new Bass Pro-based development going up at Interstates 70 and 470 in Independence had no problem drawing interest from hotel operators. The project includes a 200-room hotel and conference center.

"If there's both a local need for more rooms and a destination draw, it's a lot of benefit," said Audrey Navarro of Kessinger/Hunter & Co., the firm leasing space at The Falls, the development being anchored by Bass Pro.

"The retailers want customers there early and late in the day, and a hotel helps," she said. "We'll also have a convention center that's part of the project. The hotel attracts those users."

Other shopping developments that have hotels in the mix include Zona Rosa in the Northland, which plans a 100-room facility, and The Legends near Kansas Speedway in western Wyandotte County. The Legends has two hotels completed and two more scheduled to be built. The hotels are geared mostly toward shoppers and race fans.

"They're great tenants, and they want to be there," said David Claflin, vice president of marketing at RED Development. "All of this stuff works symbiotically. Tenants like to be near hotels because people stay overnight and stay longer for restaurants and shopping."

Sometimes having a hotel included in a mixed-use project is simply a no-brainer because of its location.

That's the case with the 46 Summit project being pursued by Denver-based MacKenzie House near the Country Club Plaza. The proposed development at 46th and Jefferson streets includes a 189-room boutique hotel and a 246-unit apartment building.

MacKenzie House has developed several residential projects near the Plaza, but this is its first hotel proposal. The firm wants to develop an Aloft hotel, the same luxury flag being built at Park Place.

"For us, its very much site-driven," said Don MacKenzie, president and CEO of the company. "We looked at that site and the overall Plaza situation, which needs additional brands."

The perceived need for a more luxurious and unique product on the Plaza fueled the decision by Bob Bernstein to include a boutique hotel in his West Edge development under development at 48th Street and Roanoke Parkway.

A 131-room hotel to be operated by Gemstone Resorts International is part of the $116 million development. West Edge, which will house the headquarters of Bernstein-Rein Advertising and Beauty Brands, includes 205,000 square feet of office space, 26,785 square feet of retail and an underground garage with 1,056 spaces.

"My vision was we needed to have an upscale boutique hotel on the Plaza that would offer something not currently being offered," Bernstein said. "It would be convenient and have the same ambience to co-exist with the office building.

"The idea is they complement each other and work together."

Other high-profile projects that include visions for a unique hotel include the Power & Light District, where the Cordish Co. is seeking city help to build a luxury hotel and condominium tower, and the Briarcliff development in the Northland, where developer Charles Garney has been granted city tax incentives to help build a 250-room luxury hotel.

Nathaniel Hagedorn, project manager for Briarcliff Development Co., said the 10-story hotel would enhance the environment at the development, which includes single-family and condominium housing, upscale shops and restaurants and what ultimately will be 1.1-million square feet of office space.

"We think a hotel complements everything," Hagedorn said.

As opposed to most hotel projects in mixed-use developments, the Briarcliff project will be a full-service Marriott Renaissance hotel with banquet rooms, restaurants and meeting space. Construction of the hotel, owned by Rick Baier and Dan Carr, is scheduled to begin next spring with completion expected in late 2009 or early 2010.

"Limited service is not what Charles wanted in the community," Hagedorn said. "He wanted a signature hotel in the Northland."

Veteran hotel operator Kevin Pistilli, president of Raphael Hotel Group, which manages the Downtown Marriott and the Hilton Garden Inn in downtown Kansas City, Kan., said the influx of hotels in mixed-use developments should not be a problem for existing properties as long as not all the proposed projects get built.

"The mixed-use projects being done probably won't have much impact downtown," he said. "They're relatively small hotels and specialized to the activities where they're built.

"Thirty-four hundred is a big number when you consider we're running at 60 percent occupancy. It's too many, and obviously some won't get built. If a number are built, it would have an effect on the whole market, not just downtown."

To reach Kevin Collison, call 816-234-4289 or send e-mail to [email protected].

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