Study: Hotel faces difficult prospects
GREENSBORO — Regardless of how it is financed, a new downtown hotel would likely struggle to succeed if it’s built as proposed by developers, a report says.
Urban Hotel Group would enter a Greensboro hotel market that is coping with depressed room rates, occupancy levels and commercial real estate values, according to the survey commissioned by the city of Greensboro.
The study, written by hotel consultant HVS Global Hospitality Services and completed Jan. 18 , says the recession has pummeled the hotel industry nationwide, especially in Greensboro, where business trips and conferences have declined dramatically.
Urban Hotel Group, which plans to use a combination of special federal stimulus financing and private investment, says in its proposal to the city that the 206-room hotel would enter the market well-occupied so it can maintain a healthy room rental rate to meet its financial obligations.
Two of its closest competitors, according to the city report, would be the Proximity and O. Henry hotels, two luxury hotels owned by Quaintance-Weaver Hotels & Restaurants.
Dennis Quaintance and Mike Weaver , the company’s primary investors, have publicly questioned Urban Hotel Group’s plans and are doing their own analysis of the proposal. They say city and county officials have done a sloppy job of vetting the proposal’s application for stimulus financing.
But Melvin “Skip” Alston says the two businessmen’s sole motivation is to stop competition in downtown, where they have considered a hotel of their own. Alston, the chairman of the Guilford County Board of Commissioners, brought together several of the key investors on the hotel project and is a broker on the deal.
Alston said the proposal “shouldn’t be based on the influence of Dennis Quaintance and Mike Weaver or on the influence of me or (hotel advocate) Deena Hayes. They should judge this hotel on its merits.”
The HVS report seeks to do just that.
Randall Kaplan , an investor in the downtown hotel, has said the group’s plans won’t be set in stone until they’ve done their own final economic analysis.
Urban Hotel Group says that 64 percent of the hotel’s rooms would be occupied on an average business day in 2012 at an average rate of $155 a night .
But the HVS report is not so optimistic.
“The developer’s projection of occupancy at the proposed hotel over the first five years is highly unlikely to be achieved given the recent occupancy levels achieved by the four hotels that will be primary competitors of the proposed hotel,” the company wrote.
The Marriott hotels downtown and at Piedmont Triad International Airport are considered by HVS to be the other primary competitors.
The new hotel is dependent upon special bonds that Urban Hotel Group wants to issue under the federal recovery zone program in the 2009 stimulus package. It allows developers to borrow money at lower interest rates while giving investors tax-free income from the interest they earn.
There’s plenty of evidence, the report suggests, that the recession has dealt a heavy blow to the Triad’s hotel industry, as it has to the nation’s.
Rates have been slashed and the number of luxury hotel rooms on the local market grew by 322 rooms in 2007 — up to 734 — when the Proximity and DoubleTree hotels opened in Greensboro.
HVS says its research shows the average daily luxury hotel rate would be $147 a night in 2012 , less than Urban Hotel Group’s projection. The report suggests the average could grow to $180 a night by 2016 , which matches Urban Hotel Group’s projection.
Another factor could threaten the downtown proposal as well: Real estate values for hotels have dropped, and savvy investors will be able to buy those properties and upgrade them to luxury level at a fraction of the cost of a new hotel.
The 175-room DoubleTree hotel on High Point Road, for example, was a run-down Howard Johnson hotel until a developer turned it into an “upper upscale” hotel, in industry terms. HVS reports that the developer spent about $18 million, or $106,000 per room , to turn it into a top-quality hotel.
“Compare this cost to the projected total project cost of the proposed luxury hotel to be built in downtown Greensboro at $54,486,248, or $264,496 per room for the 206-room hotel, and it is clear that the proposed hotel will not be able to compete at an economically viable level,” HVS writes.
Quaintance and Weaver stress they are not against the specific project, just the city’s process.
Quaintance said he was angry when Urban Hotel Group was allowed by the city to shift its proposed location for the hotel from South Elm and Lee streets to its current site — Davie Street and February One Place — a week after the Dec. 15 deadline for proposals.
He said he felt the city had initially required proposals to offer specific details but did not seem to mind when Urban Hotel Group made broad, general changes to its plan.
So, sleepless in the wee hours of Jan. 12, Quaintance said he dashed off an e-mail to Andy Scott, Greensboro’s assistant city manager for economic development , making a hypothetical argument.
“I am disappointed in that if we’d known earlier what we know now, we probably would have gotten busy and put together our own project (smaller initial phase), three variations of which have been in the works for years,” he wrote.
He said Thursday he wanted to give the impression that such an incentive to build might have attracted other developers as well, from which city leaders could have chosen the best project.
“I was exasperated. I was talking hypothetically,” he said. “I was pushing hard for a better 'process’ for our community.”
Scott, meanwhile, has been reprimanded for not turning the HVS report over to City Council members before it was turned over to Quaintance and others in a public records request. Council members did not know the study, which cost more than $3,000, had been commissioned by city staff.
Scott said he was docked a vacation day by the city manager over the incident.
Staff Writer Amanda Lehmert contributed to this report.
Contact Richard M. Barron at 373-7371 or richard.barron@news-record.com
Accompanying Photos
Photo Caption: This parking deck is part of the property being considered for a new luxury hotel in downtown Greensboro.
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