SUNDAY EDITION | Too much, too fast? A closer look at Louisville - WDRB 41 Louisville News

SUNDAY EDITION | Too much, too fast? A closer look at Louisville’s downtown hotel boom

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The Aloft Hotel at 1st and Main streets opened in November 2015 The Aloft Hotel at 1st and Main streets opened in November 2015
Cleo Battle, vice president, Louisville Convention and Visitors Bureau Cleo Battle, vice president, Louisville Convention and Visitors Bureau
Patrick Gregory, general manager, Sheraton Louisville Riverside Patrick Gregory, general manager, Sheraton Louisville Riverside

LOUISVILLE, Ky. (WDRB) --  Louisville developer Steve Poe stood at the corner of 7th and Market streets earlier this month and explained his plan to build an 8-story, 134-room hotel on what is now a surface parking lot.

Just a block away at 8th Street – within earshot of Poe’s site – work continued on an 8-story, 145-room Holiday Inn Express that will open in April. And less than a mile in the other direction, Poe’s group just opened a 175-room Aloft Hotel in November.

Poe said he has no hesitation about adding another hotel – in this case, a Hilton-brand Homewood Suites – to the downtown market.

“The numbers for hotels downtown are very good right now. Rates and occupancies are up,” Poe said.

Downtown Louisville is in the midst of a hotel boom that is unprecedented in recent memory. The boom is fueled by bourbon tourism, events at KFC Yum! Center and – most significantly – the renovation and expansion of the Kentucky International Convention Center, which is set to begin in August and wrap up in 2018.

Counting the three hotels that have opened since late 2014 – and six more planned in the next two years – over 2,000 hotel rooms will be added to the Central Business District by 2018.

That’s a 53 percent boost in downtown hotel rooms in just over three years, according to a WDRB analysis of figures from Louisville Convention & Visitors Bureau.

More than a fourth of the new capacity will come from the 30-story, 612-room Omni Hotel at 2nd and Liberty streets, which tourism officials say will serve as a magnet for conventions that currently pass Louisville by and, in turn, bring more business to the other hotels. 

When the building boom is through, downtown will have 20 hotels, up from 11 before the opening of the Hilton Garden Inn in late 2014 at 4th and Chestnut streets and the two hotels that opened last year,  the Embassy Suites at 4th Street and Muhammad Ali Boulevard and the Aloft at First and Main streets.

INTERACTIVE MAP – Click here to see all the new and planned downtown hotels

In a city that has never seemed to change very fast, some wonder whether the hotel building boom is sustainable.

“We can probably absorb a lot of these (new rooms). My only concern is – gosh -- there are just so many,” said Brandt Niehaus, president of Huff, Niehaus & Associates, Inc., a Louisville-based hotel brokerage firm.

Niehaus said the downtown market should be particularly challenged in the next two years from a lack of convention business as the center is closed for the $180 million renovation project.

But developers like Poe brush off concerns about over-building, citing the long-term combination of bigger conventions and continued growth in bourbon-related tourism.

“We think that’s going to make downtown just continue to thrive,” he said.

If anything, the supply of hotel rooms in downtown Louisville is “inadequate right now,” said Steve Michael, a principal of Hudson Holdings, based in Del Ray Beach, Florida.

Hudson Holdings plans to convert a portion of the Starks Building at 4th Street and Muhammad Ali Boulevard into a 230-room Canopy by Hilton hotel.

The company also plans to renovate the Republic Building, a block away at 5th Street and Muhammad Ali, into a 110-room Hotel Indigo, a boutique brand owned by InterContinental Hotels Group.

“We see a strong, growing convention market and a strong, growing tourism market in Louisville,” Michael said in an interview. “Both are growing, and we are looking for quite a bit of expansion over the next 10 years.”

Hotel market going up for last six years

Figures from STR Inc., a leading hotel market research company, show why developers like Poe and Michael are so confident in the Louisville market.

The whole Louisville-Southern Indiana metro area has about 20,000 rooms in 177 hotels, and the percentage of rooms that are occupied has risen for six consecutive years, from 52.5 percent in 2009 to 65.2 percent in 2015, according to STR.

The average price of the rooms has also risen each year, from $83.50 in 2009 to $103.75 in 2015.

Last year, the Louisville area outperformed the national average in price growth and in the amount revenue per available room, which is the most important figure hotel investors look at, said Jan Freitag, senior vice president of lodging insights at STR.

“That gets a lot of people interested in your market,” Freitag said.

But already, STR’s data also show a sign that the downtown hotel market may be slowing.

In what STR calls the Louisville Central Business District – which excludes airport and East End hotels but includes all of Southern Indiana – the supply of hotel rooms grew 6.6 percent in 2015, but demand for those rooms increased only 4.2 percent.

As a result, hotel occupancy in the CBD area declined for the first time in six years, from 65.8 percent in 2014 to 64.3 percent last year.

With more hotels being added, the trend will likely lead to falling prices unless there is a big increase in travelers in coming years, Freitag said.

Omni seen as convention magnet

Karen Williams, CEO of Louisville Convention & Visitors Bureau, noted that the 612-room Omni expected to open in 2018 is the biggest hotel to be added the Louisville CBD since the Marriott Downtown in 2005.

A little less than half of the $300 million Omni project will be paid for by city and state taxpayers, primarily through tax-increment financing. The downtown Marriott, too, was subsidized by taxpayers. 

“Everyone was worried when the Marriott was built,” Williams said. “They were saying, ‘Oh my gosh, what’s going to happen – there is not going to be enough business.’”

But in fact, hotel rates went up and more rooms got booked in the years following the Marriott’s opening because the big increase in rooms allowed the city to compete for more conventions, she said.

“That is going to happen ten-fold in 2019,” when the expanded convention center and Omni are both complete, Williams said.

The Omni will allow downtown Louisville to get conferences of 4,000-5,000 attendees in a “tight block” of three or four downtown hotels, all within walking distance, Williams said.

Today, “You have conventions that come to Louisville that completely book the entire city with hotel rooms and that’s not good for the convention business,” said Michael, of hotel developer Hudson Holdings. “That prohibits conventions from coming.”

Williams said the city’s recent loss of some major events, including the National FFA Convention and the International Boat Builders' Exhibition & Conference, “really have nothing to do with downtown or our future forecasts” of increased convention business.

Both of those meetings had “very individual reasons” for decamping, she said: The boat show wanted to be near water in Tampa, Florida. And the FFA, whose 60,000 attendees packed hotels as far as 60 miles away from Louisville, opted for Indianapolis where there is a much greater density of rooms.

If anything, the loss of FFA underscores the need for more downtown Louisville hotel rooms, Williams said, though she added that the FFA also needed a significant number of lower-priced, double-occupancy rooms for its youthful attendees. 

Analysis: Omni improved hotel business in downtown Nashville

As ever, Louisville officials are looking three hours south, to Nashville, in hopes of replicating what’s happened in that city.

In September 2013, Omni Hotels and Resorts opened a similar-scale marquee hotel with 800 rooms in downtown Nashville. The Omni is adjacent to the city’s massive convention center, the Music City Center, which opened earlier in 2013.

The Nashville Omni was also publicly subsidized at a similar level to the Louisville hotel.

Including the Omni, about 1,500 new hotel rooms were added in downtown Nashville in 2013.

But even with all those new rooms, hotel rates and bookings still went up, according to an analysis by economists at PKF Hospitality Research, a unit of real estate brokerage firm CBRE.

The Omni allowed Nashville to book at least six large conferences in 2015 that otherwise would not have been possible, including the National Rifle Association convention that brought 48,000 people to the city, according to PKF Hospitality.

“The expanded scale of the Nashville hotel market stimulated this growth in demand for national and international conventions, trade shows, and conferences that historically did not use Nashville as their meeting destination,” the PKF report said.

By mid-2015, the Omni and nearby hotels were nearly 80 percent full, the report said -- “levels never seen before in Downtown Nashville.”

Patrick Gregory, general manager of the Sheraton Riverside in Jeffersonville, said the Louisville Omni will “change the game” for the city and bring more business for surrounding hotels like his.

“They are a major player in conventions,” said Gregory, a board member of the Greater Louisville Hotel & Lodging Association. “They are going to bring a sales force we don’t have. They’re going to bring international exposure we don’t have.”

Copyright 2016 WDRB News. All rights reserved.

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