Crrreeeaaak. Drip. Drip. Drip.
Is money flowing through the credit faucet again?
A Cary developer is dusting off plans to build a luxury hotel near Raleigh-Durham International Airport -- a sign that investors and lenders are confident the economic turnaround is getting closer, or at least that they're willing to gamble on hope.
Sahaj Hotels expects to break ground next week on a CrownePlaza hotel on Airgate Drive, picking up stalled plans to add a ritzy option to a cadre of hotels serving business travelers near Research Triangle Park.
Much has changed since December 2007, when Sahaj's president, Hitesh Patel, revealed plans for the hotel, which is to include 190 rooms and about 15,000 square feet of meeting space.
Back then, the local economy was still humming along, albeit showing signs of wear. In the ensuing months, as the economy went into freefall, the stream of financing for commercial real estate projects dried up.
Lenders, who during the go-go years would regularly front 75percent of a project's cost, began to offer 70 percent, then 60percent, then 50 percent and, in many cases, nothing. . The few developers who had the cash to cut low-leveraged deals retreated to the sidelines, as demand for commercial space lagged.
Patel, who with two New York partners expects to pay 35 percent to 40 percent equity into the $20 million project, says financing the Crowne is simply a matter of choosing between Capital Bank, BB&T, or West Coast lenders, whom he declined to name.
The number of interested financiers seems to offer some indication that economic revival is closing in. Ditto for the plan to actually take the money and build in a recession.
Many cash-flush hoteliers are too leery to crank up the bulldozers. Business and leisure travel have suffered as companies and consumers reckon with lighter piggy banks. Hoteliers, in turn, have taken a hit.
Hotel occupancy in the Triangle was 56 percent in March, down from 68 percent two years ago. And revenue per available room has fallen 19 percent during that period, according to Smith Travel Research, a Tennessee company that tracks the lodging industry.
Patel thinks his timing is perfect. He initially hoped to finish the Crowne this summer, but a protracted permitting process derailed that schedule. "We thank God every day that we are late," says Patel, whose company also owns the Wingate Inn on Page Road in Durham.
Last year, construction materials were still carrying boom-time prices. Opening an expensive hotel in an era of slack demand would have been disastrous.
Patel says the project will cost 30percent to 40 percent less than it would have a year ago, now prices have cooled for that construction materials. He thinks that by the time the Crowne is finished in 2011, travel will be on the upswing, helping him compete with the Sheraton Imperial in Durham, the Embassy Suites and the Umstead in Cary.
The optimism comes as hotel operators are starting to see some stability in demand. A freefall in occupancy and rates appears to be in the midst of a bumpy landing. "We have not seen another leg down over the past month," hotel analysts at FBR Capital Markets & Co. wrote Wednesday.
At the same time, luxury hotels may take a little longer to rebound. As people start traveling again, many are expected to economize. So the Crowne could end up competing not only with its upper-scale counterparts, but also with more affordable hotels such as Cambria Suites, , across Airgate Drive.
The 103-room Cambria, which opened late last year, has been given a boost by business travelers who might have stayed at the Sheraton or Embassy a few years ago. Of course Yogesh Manocha, who owns the Cambria on Airgate, likely would rather see no competition built across the way. But he knows that the Crowne's ability to host big meetings could create spillover business. But that's a ways off .
"In this economy, I'm scared a little bit," he says. "But as things get better, we'll need another full-service hotel in the market."
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