The state of the hospitality industry in the Southeast is under the microscope this week at the 22nd annual Hunter Hotel Investment Conference at the Atlanta Marriott Marquis downtown.

While workouts, special servicing and distress assets have become household terms over the past year, the good news is that key metrics are beginning to improve. After suffering through a bruising economic downturn, the metro Atlanta hotel market—the sixth largest in the nation—is on the mend. The occupancy rate in January registered 52.1 percent, up from 47.9 percent in January 2009, according to Smith Travel Research.

What’s more, revenue per available room (RevPAR) rose 2.5 percent in January on a year-over-year basis in metro Atlanta. That’s a welcome turnaround for owners and operators who for much of last year appeared shell-shocked by the downward spiral of the hotel market.

RevPAR in the Atlanta hotel market plummeted 17.8 percent in 2009, according to Smith Travel Research. For the year, occupancy at Atlanta hotels averaged 53 percent, down from 58.8 percent in 2008. The average daily rate fell from $91.06 to $83.01, a decrease of nearly nine percent.

But even so, Atlanta slightly outperformed its peer group. RevPAR in the top 25 U.S. lodging markets fell an average of 19 percent in 2009.

Near-term concerns
A wave of new supply has dampened hopes for a robust recovery in the Atlanta hotel market in the short run. Some 9,504 new rooms are in the pipeline, including 2,010 rooms under construction, 919 in final planning and 6,575 in earlier planning stages. The room pipeline represents about 10 percent of the current inventory of 94,260 rooms.

Among some of the more high-profile projects, locally based InterContinental Hotels Group plans to open a 150-room Hotel Indigo in May in the historic Carnegie building downtown and follow that up with a 142-room Hotel Indigo in College Park in 2011.

The new construction follows the debut of several new hotels locally last year. The 237-room W Atlanta-Downtown opened in January 2009. In April, the luxurious St. Regis opened in Buckhead with 150 rooms and 50 condos. That same month Kimpton Hotels & Restaurants opened the 304-room Hotel Palomar, a boutique hotel, in Midtown.

“The market has experienced significant room growth recently and certainly not at the best time for that to happen,” says Steven Nicholas, principal and executive vice president of Atlanta-based Noble Investment Group and conference panelist focusing on the art of hotel asset management.

Nicholas estimates that 5,000 rooms have been added to the Atlanta hotel market over the past two years, forcing hoteliers to be more flexible on pricing. In short, the added supply is fueling price discounting.

Noble Investment Group has 8,500 rooms in its portfolio. Last fall, the company completed the development of the Macon Marriott City Center Hotel in Macon, Ga., as part of a public-private partnership with the city.

The asset management panel this afternoon will pinpoint where the lodging sector currently stands in the real estate cycle, identify potential investment opportunities, and share what hotel companies are doing individually and collectively at their properties to weather the downturn.

“I think that we are at or close to the bottom of the cycle. The hotel industry is truly a cyclical industry and it’s been proven over and over again,” says Nicholas. “When the industry improves, it will improve quickly. Our job right now is that we do everything we can to mitigate the downside, but also more importantly be prepared to capitalize on the upside.”

In the case of Noble Investment Group that means pursuing new revenue streams. “At some of our hotels we’re taking on business we haven’t looked at before. More specifically, some of our corporate group hotels now have a number of government pieces of business because that’s not a segment some of our upper upscale hotels have used before.”

On the expense side, hoteliers today are trying to achieve cost savings at all levels without negatively affecting the guest experience, adds Nicholas.

Matt Valley is editor of National Real Estate Investor, a Penton Media publication.