Hospitality giant Marriott International Inc. brought its European line of hotels to the United States earlier this month with the opening of an AC Hotel in New Orleans, and industry analysts predict a string of other brands will make local debuts in months to come as more developers seek to tap the city’s growing visitor market.
AC Hotels, a stylish brand founded in Spain by Antonio Catalán and brought under Marriott’s wing through a joint venture in 2011, operated exclusively in Europe until stamping its name on the former Cotton Exchange Hotel at Carondelet and Gravier streets.
The 220-room AC Hotel aims to deliver “a cosmopolitan hotel experience” in a city endowed with “unique cultural offerings,” General Manager Melisa Kennedy said.
Kennedy said AC’s attention to design, technology features and its chic “social spaces” will appeal to a growing number of business and leisure travelers who are in their 20s and 30s and are drawn to fashionable urban settings.
Catering to millennials has become the mantra of hotel companies that are introducing brands they say are sleeker and hipper than traditional inns. Best Western International, for instance, recently announced a new “technology-centric” brand called Vib; Hilton Hotels and Resorts introduced its trendy Canopy line; and Carlson Rezidor Hotel Group has followed its Radisson Blu concept with a “lifestyle select” brand called Radisson Red.
Along with adding youthful appeal, these brands help hotel companies expand in markets where they already have a heavy presence. In New Orleans, for instance, where Marriott flags ranging from JW Marriott to Courtyard to Residence Inn already appear on more than a dozen hotels in the downtown area, the AC Hotel brings a new name and look to the mix.
But analysts say that while brand diversification is a common goal, hotel location decisions ultimately occur not so much in the boardrooms of the big brands as in the offices of developers who put up the cash to open the doors.
“These are owner decisions,” said Jan Freitag, senior vice president with Tennessee-based STR, formerly Smith Travel Research.
Freitag said “an absolute land grab” is underway across the United States by hotel brands that are seeking to plant their flags throughout key markets. But for the most part, the hotel companies can choose their locations only to the extent that they can negotiate deals with developers. The big hotel companies “are really good at building franchises and marketing organizations,” but they prefer not to be in the real estate business, Freitag said.
The AC Hotel in New Orleans, for example, is owned not by Marriott but by Frisco, Texas, developer NewcrestImage LLC, which has a portfolio of about 15 hotels and invested $10 million to open the New Orleans property.
NewcrestImage and other developers like New Orleans both for the strength of its hotel market and for opportunities it presents to benefit from tax credits on historic property renovations.
While the city’s inventory of available historic buildings has thinned, a local veteran of such developments is still finding potential. HRI Lodging, the hotel arm of New Orleans-based HRI Properties LLC, early next year will open the city’s first Aloft Hotel, a fast-growing brand by Starwood Hotels & Resorts Worldwide Inc.
Brett Forshag, who heads sales and marketing for HRI Lodging, said the “cool and eclectic” 188-room hotel also will have a residential component comprising 190 apartments and several penthouse suites.
“Starwood had for a while been wanting to place an Aloft in New Orleans and had difficulty finding locations,” Forshag said. HRI obliged with the redevelopment of a vacant office building at 225 Baronne St.
The 19 hotel properties in HRI’s portfolio encompass most major hotel brands and include six hotels in which the company has an ownership interest. Forshag said HRI is continuing to scout for more local sites.
“The New Orleans market is, in many respects, underbuilt,” he said.
The city today has close to 38,000 hotel rooms, including some 22,000 in the downtown-French Quarter area, but a shortage of land, permitting hurdles and other barriers to new development have kept room growth to a slow pace even as the city’s convention and tourism business has burgeoned.
As a result, data compiled by STR show the average occupancy of local hotels at nearly 70 percent as of September, with some downtown inns trending significantly higher.
Freitag said the “very healthy” demand boosts hotels’ “pricing power,” which is reflected in an average daily room rate of $143. That’s well above rates in cities such as Atlanta, Orlando, Florida, and Nashville, Tennessee, where rates range from $92 to $115 per night.
Revenue per available room — a crucial measure of hotel performance — has been growing steadily in New Orleans for several years, according to STR. And after posting a 6.6 percent increase in REV-PAR last year, the market nearly equaled that growth pace during the first nine months of 2014.
Adam Lair, managing director in New Orleans for hotel consultant HVS Consulting and Valuation Services, said growth in local hotel revenue is particularly impressive given that the 2013 figures included the city’s hosting of a Super Bowl.
“Typically, demand kind of craters in the year after a Super Bowl,” he said.
Lair said the continuing strength, particularly in downtown hotels, reflects a fundamental change in the local hotel business. Whereas conventiongoers have long outweighed the number of leisure travelers, or tourists, visiting the city, “hotels are seeing more of their revenue coming from transient demand,” with leisure travel beginning to account for nearly as many hotel rooms as conventions, he said.
He believes this shift is bringing greater stability to the lodging market and will continue to draw hotel development in the form of new construction, where land is available, or the conversion of existing buildings.
Portland, Oregon-based Provenance Hotels seems proof of the forecast. The independent boutique hotel brand purchased the Ambassador Hotel at Tchoupitoulas and Lafayette streets last year. In partnership with GB Lodging LLC, of New York, it is spending $13 million on a renovation, with plans to open the hotel next spring under a new name, not yet announced.
“We are bullish on New Orleans,” Provenance Hotels President Bashar Wali said. The city is “a truly formidable player on the convention and tourism fronts, and we were lucky enough to get in before everybody jumps on the bandwagon,” he said.
The hotel will be the company’s first in New Orleans, but Wali said it won’t be the last. “We believe this market is only going to get better,” he said. “Our intention is not to do just one.”