Hotels Bloom in Atlanta

The Loews Atlanta Hotel in Midtown

Hotels are blooming in Atlanta, the economic hub of the Southeast. At least six hotels and 4,000 new hotel rooms have come on line over the past two years in a market that already boasted 94,000 rooms. Hundreds more rooms will be added this year.

Although the hospitality market is molasses-slow in most major American cities, new rooms are rushing through the development pipeline in this historic Southern city. For example, New York-based Loews Hotels recently unveiled its four-star Loews Atlanta Hotel in Midtown, not far from the upscale Hotel Palomar, which San Francisco-based Kimpton Hotel & Restaurants Group inaugurated last year.

“Atlanta is a market that we've always had our eyes on,” says Elif Bali, vice president of acquisition and development at Loews Hotels. Before the Loews opening, the fanciest new hostelry in town was the super-luxury, $120 million St. Regis, which opened last year in the pricey Buckhead district. Atlanta-based InterContinental Hotels Group earlier opened a Hotel Indigo in Midtown, across from the historic Fox Theatre and plans to open another hotel downtown in August. Meanwhile, Marriott appears to be making a strong move to dominate the busy market at Hartsfield-Jackson International Airport.

What is drawing such strong interest on the part of hoteliers? Atlanta is the nation's fourth busiest hospitality hub. At a time when many other cities are still struggling, the latest numbers from Smith Travel Research show a market at the beginning stage of a modest recovery. The occupancy rate for Atlanta hotels climbed to 59.8% in the first quarter of 2010 from 55.2% in the same month in 2009. Revenue per available room (RevPAR) rose to $52.32 in March from $48.35 in the same month last year. The average daily rate (ADR) remained fairly constant at $87.53 in the first quarter compared with $87.60 in the same quarter last year.

“There is an aggressive mentality when it comes to development of hotels in Atlanta, but it is calculated development,” says Jeff Higley, vice president at STR Global, a unit of Smith Travel Research. “How many cities, outside of Las Vegas, have 94,000 hotel rooms? Very few.”

Atlanta is an attractive hospitality market because of the diversity of travelers and sheer volume of visitors, adds Higley. Its airport is the busiest in the country, he points out. “It's not just the convention trade, and it's not just tourism. Atlanta's got the whole package.”

Convention numbers augur well for tourism and hospitality, says William Pate, chief executive of the Atlanta Tourist and Convention Bureau. Attendance averaged 16% above expectations for the first seven of nine scheduled conventions held this year. “That shows health,” he says.

Downtown Atlanta has 12,000 hotel rooms within walking distance of the Georgia World Congress Center. “The city works best when you have large conventions of 30,000 people or more, and people want different kinds of accommodation,” observes Pate.

The developers of Atlanta's new hotels didn't set out to open their inns just as the economy was just starting to climb out of a deep recession. “These projects have been in the pipeline for 18 to 24 months,” explains Higley. The developments were planned in anticipation of better times.

When the next crop of hotels reach completion, “they will be the last hotels to be seen in Atlanta for a long time,” says Mark Woodworth, a senior vice president at PKF Consulting's Atlanta office.

Lenders are wary of commercial real estate in general, and hotels in particular. They rank higher in delinquencies than other property types when it comes to CMBS-related loans. New hotel projects are expected to be scarce until the economy rides high again.

But the scarcity of construction financing may be a blessing for the owners of the newly completed hotels because it could take years for the market to absorb the current glut of hotel rooms. “This lack of new supply will allow new hotels to come on line, while existing hotels can stabilize,” says Loews' Bali.

Locally, the year's big hotel story is the ascendancy of Midtown, immediately north of downtown Atlanta. The high-density, pedestrian-oriented neighborhood has been attracting plenty of office, residential and hotel development.

A St. Regis recently opened in the Buckhead district of Atlanta.

Midtown emerged as a market distinct from downtown nearly 30 years ago but was slow to gain cachet, says Woodworth. “By the 1990s, people began noticing the residential charm of the neighborhood,” he notes. And Midtown is close enough to downtown and the convention center to take advantage of Atlanta's meeting business. “Midtown's only a five-minute cab ride away.”

With the completion of the 404-room Loews Atlanta, Midtown gained some of the status earlier reserved for Buckhead, which boasts many high-value hotels, including the 26-story, 150-room St. Regis Atlanta, developed by SR Development Co. of New York.

With the new Loews, Midtown can stand shoulder to shoulder with Buckhead as a fashionable hospitality center, says Bali. “Midtown hasn't really had a hotel of this quality since the Four Seasons opened in the 1990s.” The Loews Atlanta is part of a $500 million mixed-use project that includes 750,000 sq. ft. of office space. It was developed by Daniel Corp. of Atlanta.

Midtown appeals to young professionals in search of walkable streets in a car-oriented city.

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