At the start of 2001, downtown Baton Rouge didn’t have a single hotel room — a deficiency that city leaders agreed would stifle their aspirations of making the area a thriving tourist destination.
Tourism and downtown officials then set a goal of building out more than 1,200 hotel rooms in the area, with the hopes of being able to attract more high-profile conventions and performances to the River Center.
Today, downtown boasts five hotels, along with two that are underway or in the planning stages, thanks in large part to public incentives offered to hotel developers that give them all or part of the sales taxes that would otherwise flow into government coffers.
Even with the enormous improvement in downtown accommodations, city leaders are still focused on luring more hotels to the area. But some industry representatives counter that it may be time to pump the brakes, concerned that the downtown Baton Rouge hospitality market is now overcrowded.
There are 896 open hotel rooms between the Belle of Baton Rouge, Hilton Baton Rouge Capitol Center, Hotel Indigo, Hampton Inn and Suites and the recently opened Holiday Inn Express. All of those hotels, except the Belle, which has an attached casino, benefit from tax increment financing. For example, Hilton’s TIF, the first issued and most generous, allows the hotel to keep about $900,000 a year in taxes.
The latest hotel proposal — the Courtyard by Marriott slated for Third and Florida streets — is seeking TIF approval, in which the city rebates back to the hotel its 2 percent local sales taxes. The Baton Rouge Metro Council is expected to vote on the incentive at its meeting Wednesday.
Recently, an email exchange between the two developers who are building the two newest downtown hotels surfaced that suggested the market couldn’t sustain both competing operations.
In a March 20 email, Bo Aughtry, developer of the Marriott Courtyard, wrote Mike Wampold, who is developing the Watermark Baton Rouge, a Marriott Autograph hotel a few blocks away in the former State Office Building, encouraging him to “re-examine alternatives — or even delay development.”
“We will all be damaged with added room supply in a market that already suffers,” wrote Aughtry, who also developed the Hampton Inn downtown.
Aughtry said the downtown market “remains quite soft with the Hilton offering $96-99 rates to all large accounts — incredible.”
With the exception of the Hampton Inn, Aughtry said none of the downtown hotels will break 70 percent for annual occupancy rates. Industry leaders say about 70 percent or higher is the average annual occupancy rate for a healthy hotel market.
Contacted about the email, Aughtry said he could not comment at this time.
Wampold, whose project has already received a 2 percent TIF approval, said in an interview that he takes Aughtry at his word about the downtown market conditions.
Wampold doesn’t own hotels in downtown Baton Rouge, but he developed the Renaissance hotel on Bluebonnet Boulevard, a project that gives him access to some hotel data.
He agreed that Hilton’s business rates suggested a soft market.
“Healthy group rates are in the $120 to $129 range,” he said. “To reduce that by 30 percent to go after groups, that says something.”
But Wampold said he is moving forward with his concept, which is to transform the historic old State Office Building into an upscale hotel.
“We see an opportunity in that market,” he said. “We’re going to develop an upscale, boutique, full-service hotel with a cool restaurant and bar. Downtown doesn’t have that right now, so we’ll fill that void.”
Soft occupancy rate
According to STR Inc., which tracks hotel data nationwide, through the first five months of 2015, the average occupancy rate for Baton Rouge hotels is 65.7 percent, a 0.5 percent increase over the year before. The average daily room rate is $86.11, a 3.5 percent increase from the first five months of 2014. For all of 2014, the citywide occupancy rate was 63.5 percent, with an average daily room rate of $84.87.
In contrast, New Orleans and hotels across the state have generally better numbers than Baton Rouge. New Orleans, one of the top tourism cities in the country, had an occupancy rate of 74.1 percent. The state average for occupancy was 65.5 percent. The average daily rate in New Orleans during the first five months of the year, a time that is boosted by Mardi Gras and the New Orleans Jazz and Heritage Festival, was $161.73, while the Louisiana average was $118.24.
STR’s Baton Rouge sample isn’t large enough to break out downtown as a separate unit, and rates and occupancy numbers for individual hotels are proprietary.
Davis Rhorer, executive director of Downtown Development District, said he believes the downtown hotel market is prospering and will only continue to improve.
He also notes that Marriott conducted its own study of the market, which determined the area could sustain both new proposed hotels.
“I think there is always room for high-quality projects like these two proposed hotels,” he said. “The impact study confirms both hotels can prosper. The developments that these companies produce elevate downtown with each brick, and what is good for downtown is good with me.”
Rhorer said he supports Aughtry’s TIF. He said he likely will continue to pursue a couple more hotels to push them closer to 1,400 rooms but he is open to the idea that the Courtyard by Marriott is the last subsidized hotel downtown.
After Aughtry’s and Wampold’s developments are complete, both slated for fall 2016, downtown Baton Rouge will have 1,179 total rooms.
The focus on 1,200 to 1,400 rooms came about because of a 2004 study that found that density was ideal to attract conventions and events to the River Center.
Rhorer said there’s no way Baton Rouge could attract events like Miss USA, held two years in a row at the River Center, without the accompanying downtown hotels.
Aughtry isn’t alone in his apparent skepticism about the strength of the downtown market. Camm Morton, who oversaw the downtown Hilton’s operations for five years, said he doubts there’s demand in downtown Baton Rouge to sustain additional hotels.
The fact that governments have to provide incentives to lure the hotels to the area is an indication that the demand is shaky, he said.
“If you’re still at a point where you require a TIF of any sort to build a hotel, that suggests to me that it’s hard to get financing otherwise, and that suggests that the market isn’t that strong,” Morton said.
Jon Fels, a Baton Rouge hotel owner and consultant, said downtown officials don’t understand that a hotel needs to be filled 365 days a year and that big events like LSU football games or Bayou Country Superfest — the times when hotel rooms go at “rack rate,” or full price without any discounts — aren’t enough. “Having one or two or even 10 events is not sufficient,” he said.
Fels said the STR data show that the average daily rate in Baton Rouge is 25 percent below the national average and nearly 50 percent below the performance of New Orleans.
“Downtown has too many abandoned and closed businesses, while the beautiful riverfront lacks entertainment options that will generate room nights, instead of just attracting locals,” Fels said. “Regardless of the number of hotel rooms downtown near the River Center, Baton Rouge doesn’t have the direct national flight connections to effectively service most conventions.”
Fels said he believes downtown is a weaker market than the rest of the city, because the rack rates for the newer hotels are higher than most properties in Baton Rouge.
But Gayle Carnahan, general manager of the Hotel Indigo, said he thinks the downtown market is a bit stronger than the rest of Baton Rouge. “I guess we’re about the same of the rest of the city in terms of occupancy but more in terms of rates,” Carnahan said.
While Carnahan agreed downtown Baton Rouge doesn’t have the activity to support nearly 1,200 hotel rooms, he suggested that will change before the Courtyard by Marriott and the Watermark Baton Rouge open. The Watermark is being renovated in anticipation of an August 2016 opening, and ground hasn’t even been broken yet for the Courtyard, which has a projected opening of the third quarter of 2016. “Who knows when those rooms will kick in?” Carnahan said.
In the meantime, work has started on the first two buildings of the Water Campus, the hub for coastal research that is being built between downtown and LSU. IBM also recently opened its downtown service center, which will have 800 employees by 2017.
Those two developments should bring more visitors to downtown and increase room demand, Carnahan said. “Hopefully, that will cause occupancy to level out,” he said.
“Nobody has a crystal ball,” Carnahan said. He noted that before the Hilton Baton Rouge Capitol Center opened in 2006, downtown was “dead.”
But look at all the hotels now, he said. “A lot can happen. Downtown has obviously enjoyed a rebirth and a revitalization. There’s been a lot of commercial and residential activity. It’s still on an upward growth curve, and I don’t see an end in the future.”