Betting on Heartland Luxury

It's a picture-perfect morning June 16 and downtown Indianapolis has its best face on. The sky is cloudless and the sidewalks are rolled up in anticipation of a big event: hoisting of the final beam atop the $100-million Conrad Indianapolis, the city's first true luxury hotel.

Media and VIPs cluster in front of the tall, new building as a brass band plays fanfares befitting a state visit — which, in a way, this is. Besides local dignitaries like Mayor Bart Peterson and Al Kite, the lead developer, the city is hosting distinguished visitors such as Dieter Huckestein, president of Hilton Global Alliance, and Christopher Crider, his deputy and vice president of Conrad Hotels. They've come from Beverly Hills, home to Conrad and Conrad co-parent Hilton Hotels Corp. Traveling even farther: General Manager Jan Chovanec, quitting a similar post at the Swissotel Istanbul Bosphorus in Turkey.

The focus of this highly theatrical publicity is the 23-story, 243-unit Conrad Indianapolis scheduled to open next March. It will be the third Conrad in the U.S., following the Conrad Miami and floors 28 to 42 of the Waldorf=Astoria, also known as the Waldorf Towers, in New York City. The first Japanese Conrad opened in Tokyo July 1, and there's one set to open in Phuket, Thailand this year, too. Next year, Conrads are scheduled to open in Las Vegas and Indianapolis, and one will open in Dubai in 2007. Conrad Hotels, a joint venture of Hilton Hotels and British-based Hilton International, aims to more than double its portfolio to 50 hotels by 2010.

This Conrad, at the heart of the nation's largest landlocked city, signals a push to give Conrad Hotels an exalted, modernist profile similar to the one the brand has in Europe and Asia. Advance publicity billed the Conrad Indianapolis as a five-star hotel; that's certainly the hope, particularly now that Conrad has hired Chovanec.

“I want to assure that this hotel becomes a good corporate citizen,” Chovanec tells the crowd. “I would like you to feel that the Conrad is your hotel.”

In a later telephone interview from Istanbul, Chovanec says there is “a market for quality hotels” in every city. “I have stayed at or visited all the hotels in Indianapolis and I really believe the city deserves a luxury hotel,” he says. “We're talking about five-star hotels and we have to be careful. I believe that in the U.S. there are only 31 five-star hotels…You have to have, obviously, the product up to five-star standard, and as for the service, no question. The owners are going to spend a good amount of money to provide us with a wonderful product, so it's up to us to provide the software and breathe the spirit into the building.

“Our aim is to be a five-star hotel. I believe we will get it.”

LOCATION, LOCATION, LOCATION

Located at the northeast corner of Illinois and Washington streets adjacent to the Indianapolis Artsgarden, the Conrad will “set us apart,” says Jeff Andrews, director of sales and marketing. Although Indianapolis may not be top of mind as a destination city, it is the nation's 12th-largest with a population of 860,000, and it hosts nationwide events such as the Indianapolis 500, the RCA Tennis championships, the United States Grand Prix, the NFL Combine and the Brickyard 400.

“All these events create their own destination,” says Andrews. “Whether it be a convention or event or a weekend getaway, there's always the high-profile customer looking for this type of product.” Facilitating the sell: skyways that link downtown Indianapolis so people can go directly from the Conrad to the Indianapolis Convention Center and the Circle Centre Mall without stepping outside.

According to the magazine Heartland Real Estate Business, downtown retail began to revive in 1995 with the opening of the mall. Anchored by a Nordstrom's and the Parisian department stores, the Circle Centre complex spurred retail development. Since 1995, more than 50 new restaurants have opened in the area. Downtown Indianapolis seems thriving. It's also invitingly pedestrian.

Huckestein, the sharply attired chief executive of Conrad Hotels, said the Conrad Indianapolis will cement Conrad's reputation as the hottest “new kid on the block” in luxury hotels. He noted that business travel is back and Conrad will benefit from Hilton's infrastructure and HHonors program, which has 17 million members. “All of our brands are now in Indianapolis,” he said, “and that's a hell of an anchor.”

After the ceremony, he said it made sense for Conrad to go into Indianapolis, where every major brand is represented. Developing a luxury product with a condominium component also will work, particularly in “the best location in the city.”

What struck him during a stroll the night before the ceremony was Indianapolis' “European flavor, a Bostonian flavor,” he said. Not only is there a mix of residential, commercial and office development, Huckestein said, the downtown is designed to appeal to people's sense of gregariousness and community.

According to Andrews, the Conrad expects to bank on the brand's global aura to draw customers from St. Louis to New York. Other full-service hotels in downtown Indianapolis, like a Marriott, Omni, Hyatt and Hilton, are running occupancies in the 70s. Still, Andrews suggests, the Conrad will likely cut into their business; the other luxury hotel in town is the Canterbury, an older independent.

Developed by Kite Development Corporation and Mansur Real Estate Services, the Conrad Indianapolis will also contain 30 rental apartments and 15 condos. According to Kite, who said his company had invested $350 million in downtown Indianapolis development, several condos are still available. The costs are $400,000 to $1 million; the 700- to 1,200-square-foot apartments will rent for about $1 a square foot.

According to the Indianapolis Star, the hotel is expected to generate about $800,000 a year in property taxes — even after an $8.3-million tax break. The city invested $24 million in the project. About 500 workers are involved in construction and the hotel is expected to generate about 250 full-time jobs once it opens.

WHAT'S A CONRAD?

Indianapolis Mayor Bart Peterson billed the Conrad as “a step up in prestige for downtown Indianapolis” in his 2003 State of the City address in 2003, mere months after he selected Kite and Mansur as developers. In July 2004, the city broke ground on the Conrad, finally dedicating the most valuable piece of vacant land downtown.

At the June 16 ceremony, the mayor thanked the weather, “the men and women who built this building,” Conrad and Hilton executives and the developers.

“The new Conrad is going to take Indianapolis to the next level as a destination city,” said Peterson. “This isn't the end, but the end is in sight.”

Two years ago, when the developers suggested the city might be interested in a Conrad, Peterson knew nothing about the brand.

“We had a very attractive block that was originally intended to be the final piece of our downtown shopping mall, but in the early to mid-'90s, negotiations fell through for what was to be an additional department store there,” Peterson said in a later interview. In 2000, when he was elected, he decided a more intensive use was called for at that corner, so Indianapolis put out a request for proposal that attracted a developer who wanted to build a rental apartment building. Another proposed a hotel.

In early 2003, when it became clear the apartment building wouldn't work, Peterson contacted the second-place finisher about the hotel. That plan didn't work, either; then Kite and Mansur “came together and brought the Conrad to me,” Peterson said.

“They knew I very much wanted a five-star hotel, but I was thinking of other prominent names, not Conrad. I had never heard of Conrad. There were no Conrads in the United States at that point.” So when they told him, he said, “You got to be kidding. What is Conrad?”

Kite and Mansur said Conrad was “a top name around the world and the top of the Hilton line, and the reason you haven't heard of it is it's in 15 cities around the world, with none in the United States.” They also said Hilton was rebranding the Waldorf Towers as a Conrad, building one in Miami — and Indianapolis could be the third site.

Since Kite had developed the 615-room Marriott Indianapolis Downtown and Mansur had developed the 424-room Downtown Omni Severin, Peterson took note when both touted Conrad. He looked up the brand in various consumer magazines, and in 2003, spoke with top Hilton executives in Beverly Hills in a trip arranged by the hometown developers.

After a few hours with Huckestein, Hilton Hotels Corp. President and CEO Steve Bollenbach and Hilton Chairman Barron Hilton, “I came away feeling they were serious, and they have been ever since,” Peterson said. “I wanted to make sure they weren't saying, what are you doing here? What are you talking about? They were all familiar with the project and they were enthusiastic. It's been a positive experience ever since.”

Complex, too, particularly since the city is putting its money where its mouth is by becoming a partner in the Conrad. To develop the building, the city has committed to a staggered, 10-year, 50-percent tax abatement; dedicated future revenues from 384 parking spaces at the Conrad and another 1,500 in an adjacent garage; and agreed to an eight-percent equity investment in the property.

“We own part of the building,” the mayor said. “We lose the money if it fails and we make money if it's successful.”

Is he worried about the area's other hotels? “All things considered, they would have preferred that we not do this,” Peterson said, “but I also think ultimately there was a realization this probably was not going to be competitive because of much more expensive room rates.”

Rates at the “Conrad Indianapolis will be commensurate with a luxury property in a midwestern market,” says sales and marketing chief Jeff Andrews. “We're putting the rates together, but the best available rates can fluctuate daily.” For the most part, they're going to be higher than those of other downtown hotels, he acknowledges, but how much higher will depend “on the day in question.

“In the local market, there's no other hotel of this nature,” Andrews says. “We're setting a precedent in terms of service level and rates.”

Visit www.LHonline.com for more information and related articles.

THE BIG IDEAS

Dare to be different. Mayor Bart Peterson wanted a hotel “on the front end of the curve,” so he welcomed an upscale brand relatively new to the States.

Take ownership in the project. Indianapolis has invested in the Conrad Indianapolis, ensuring its continued interest in the hotel's success.

Be creative. There's synergy between the Conrad and adjacent apartment building and retail establishments. There was imagination in Crescendo, a public display by local artist Greg Hull featuring umbrellas “breathing” to celebrate the beam-hoisting. Such buzz building will keep word of the Conrad going until opening — and beyond.

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