Real Deals

Real Deals: Will new Marriott in downtown Raleigh lead to more hotel deals?

dbracken@newsobserver.comJanuary 29, 2014 

An architect’s rendering shows how a new Marriott Residence Inn would look from the intersection of South Salisbury Street and Lenoir Street in downtown Raleigh.

OVERCASH DEMMITT ARCHITECTS

— More than 18 months after the plans were announced, the City Council voted this week to sell land adjacent to the Raleigh Convention Center to a local hotel developer.

The $1.73 million deal allows Summit Hospitality Group to move ahead with an 11-story, 150-room Marriott Residence Inn. The question now is whether this project will lead to more new hotels in the downtown area, where city officials have long complained that a lack of inventory is holding back the performance of the convention center.

“I think what this does for us is that it sends a message out there to the development community that, OK, Raleigh is getting a deal done with Summit, and now they’re going to potentially want to do some other deals,” said Loren Gold, an executive vice president with the Raleigh Convention and Visitors Bureau. “The pipeline may move a little bit faster.”

After several brutal years following the financial collapse, the hospitality industry has been on the rebound. The performance of downtown Raleigh hotels has also been improving.

The average daily room rate last year for downtown hotels was $124.54, up nearly 5 percent compared to 2012, according to Smith Travel Research, a Tennessee company that tracks the lodging industry. (Those figures reflect the performance of four hotels: The Raleigh Marriott City Center, the Sheraton Raleigh Hotel, the Clarion Hotel and the DoubleTree Raleigh-Brownstone Hotel on Hillsborough Street. The 126-room Hampton Inn & Suites that opened in Glenwood South in late 2012 isn’t currently included in the data.)

Revenue per available room at the four hotels rose a modest 1 percent to $76.84 last year. The only metric that fell was occupancy, which dropped 3.6 percent to 61.7 percent last year.

That decline can largely be attributed to the fact that the new owners of the Sheraton and the Clarion made significant renovations last year, which meant portions of their rooms were unavailable for parts of the year.

Those renovations are now complete, which should ultimately drive room rates and occupancy levels higher this year. The Clarion will soon be rebranded as a Holiday Inn and the new owners of the Marriott City Center are slated to make $6 million in capital improvements to the property this summer.

Summit’s project is the type of extended-stay hotel that you’d typically see near a suburban office park, where the average customer stays five to six days.

Gold said that probably won’t be the case in downtown Raleigh, where the average stay is more likely to be in the two- to three-day range. Although the hotel will likely cater to leisure and business travelers, the city also expects blocks of its rooms to be available for convention groups.

“We’re going to need some of their inventory at times to supplement convention groups,” Gold said.

Possible sites

As for where other new hotels might get built, there are a number of city-owned and privately held downtown sites that would be suitable. There are rumors of possible projects being proposed along McDowell Street just south of Nash Square and in the warehouse district west of downtown where Citrix Systems’ new headquarters is being built.

Even after the Summit sale, the city still owns two sites adjacent to the convention center where another hotel could get built. James Sauls, Raleigh’s economic development director, said several developers have also expressed interest in possibly putting a hotel on the 310 Hillsborough St. site, which is now a parking lot used by the Campbell University Law School.

Sauls said a key aspect of encouraging more hospitality projects is developing the transportation infrastructure downtown to the point where hotels don’t have to be within one block of the convention center.

“I think that opens up a lot of opportunity for folks to come in and to develop hotels on most likely privately held sites,” he said. “We don’t have as much inventory as a lot of people think.”

Bracken: 919-829-4548; Twitter: @brackendavid

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