May 24–Charlotte’s uptown apartment market is booming, and office towers are springing up. But it’s another sector — hotels — that’s quietly laying the groundwork for even more dramatic growth.
The new hotels proposed and under construction would add about 1,900 rooms uptown and in surrounding neighborhoods, increasing the hotel room supply by 42 percent.
Some industry-watchers caution that not all of the announced projects will be built. Right now, developers are racing to line up financing before interest rates rise.
But even if all 1,900 rooms come online, city boosters say that still might not be enough.
Charlotte, they say, needs a 1,000-room hotel, the crown jewel of convention business that allows the biggest groups to book all their attendees under one roof. So far, all of the planned growth is from smaller hotels, between roughly 150 and 400 rooms.
“We conduct focus groups with meeting planners. Their complaint about our city is we don’t have enough large hotels,” said Tom Murray, CEO of the Charlotte Regional Visitors Authority. “They have to deal with too many hotels in their contract negotiations.”
The group has long advocated for a megahotel, and Murray said the hospitality business is strong enough to support such a project now.
“I think the timing is right,” said Murray, adding that there are “enough folks snooping around” to make him think a mega-hotel is possible.
The CRVA manages the Charlotte Convention Center, which has struggled at times to attract large meetings and boost Charlotte into the top tier of the intensely competitive convention business.
In fiscal 2014, reservations for hotel room nights associated with the convention center dropped to 95,817, according to the CRVA. That’s down 3.6 percent from the prior year, though CRVA officials said that number doesn’t capture the full economic impact of the center, just large groups that have booked through its Visit Charlotte division.
Developers of any megahotel project would likely push for taxpayer subsidies. The city’s current largest hotel, the 700-room Westin, opened in 2003 with the city investing about $16 million, or about 10 percent of the project’s cost.
“That kind of template is out there, so people will likely come back to the city and say, ‘Are you prepared to do that again?'” Murray said.
But taxpayer subsidies are likely to be a major point of contention with other local hotel operators.
“We think it is terribly unfair for our tax dollars to go to building our competition,” said Sid Smith, executive director of the Charlotte Area Hotel Association.
He said that a large hotel could drive more business if it helps attract conventions to Charlotte but that it shouldn’t be supported with public money.
“If anybody wants to join us in this market and take their risks like we’ve done, we welcome them,” Smith said. “We still need that one, big hotel.”
And beyond opposition to subsidies from within the hotel industry, any public subsidy would almost certainly be a contentious political issue. The city’s decision to spend $87.5 million worth of Convention Center funds to help the Carolina Panthers renovate Bank of America Stadium drew fire from opponents of such subsidies.
What’s behind the boom
A combination of pent-up demand from the latest recession, low interest rates and a strong travel market are driving the hotel boom. And hoteliers are keeping their eyes on Charlotte’s efforts to lure several marquee events. The city is planning to bid to host the college football championship as well as the NBA All-Star Game and possibly the 2020 Republican National Convention.
“Times are good, the hotel market is strong, and money’s cheap to borrow,” said Birju Patel, president of Greensboro-based BPR Properties. They’re building a 250-room Embassy Suites across from the NASCAR Hall of Fame on East Martin Luther King Jr. Boulevard.
Hotels in Mecklenburg were running at a 70.3 percent occupancy rate through March this year, according to the Charlotte Regional Visitors Authority. That’s up from 66.7 percent the same time a year ago, and well above the U.S. average of 61.1 percent.
Other performance measures have surged as well. The average daily rate for a room was up 7 percent from a year ago to almost $105. Revenue per available room, a key measure of the hotel sector’s performance, jumped 12.6 percent, to $73.64.
“That’s impressive,” Patel said of the high occupancy rates. He said the current boom isn’t limited to Charlotte. “All over the country, you’re seeing hotel after hotel being announced. We’re right now at the peak of the peak.”
A 1,000-room Marriott Marquis is under construction in Houston; an 800-room Hyatt is going up in Kansas City, and a 1,000-room Marriott Marquis opened in Washington, D.C., last year.
Although Charlotte has nearly 2,000 hotel rooms on the drawing board right now, BPR Properties’ Embassy Suites is the only project under construction. Patel said he expects most of the announced hotels will be built but predicted any that take too long to get underway would miss the current boom and be tabled indefinitely as interest rates rise.
“Any hotel that has not broken ground in the next 24 months, you’re not going to see,” Patel said.
Michael Smith, CEO of Charlotte Center City Partners, said there has been “a lot of pairing up of dance partners” as hotel companies and developers team up. But Smith also said he doesn’t expect every plan announced so far will come to fruition.
“I don’t think we’ve seen the last announcement, and I don’t think each of these will be built,” Smith said.
Levine Properties is planning to build three hotels: Two next to First Ward Park on Brevard Street uptown and one next to the Metropolitan mixed-use development in midtown. Both the First Ward hotels will be Hilton flags, while the Metropolitan tower will include both a boutique hotel and apartments. The projects are still in the planning stages.
Brian Nicholson, Levine Properties’ director of development & construction, said hotel companies are adding more brands to their portfolios and that’s helping to drive growth. For example, one of the First Ward hotels will be Charlotte’s first Canopy by Hilton, a new hotel brand meant to feature local food, drinks and art.
“Hilton and Marriott have all these different brands. … The flags keep creating new brands,” said Nicholson. “That’s their way of growing without putting a Hilton Garden Inn across the street from a Hilton Garden Inn.”
Unlike Murray and Smith, Patel said he doesn’t think a 1,000-room hotel would automatically boost the hospitality market. He painted the problem in “chicken-and-egg” terms.
“It’s going to be tough to build a 1,000-room hotel and then attract business,” Patel said. “By the same token, the city will tell you we can’t attract the business without a 1,000-room hotel.”
Patel said he worries that a megahotel could add too much capacity to the market.
“I don’t believe there’s a market for that,” said Patel. “I think all the hotels would get hurt.”
Ely writes about commercial real estate and development. Email him at [email protected] or call him at 704-358-5041.
