Arts & Entertainment, etc. and Hotels

Luxury Conrad hotel off to bumpy start

December 18, 2006

For its grand opening, the Conrad Indianapolis threw an extravagant party featuring white Lipizzaner stallions, Vienna ballet performers and a Saks Fifth Avenue fashion show.

Business at the luxury hotel also started with a bang. It sold out its opening weekend in March thanks to the Final Four, then did the same for each of three race weekends.

But overall performance for the high-rise has been less flashy. For its first nine months, occupancy has lagged the downtown average. Rates have fallen as the hotel tries to fill more rooms. Employees have worked behind the scenes to fix kinks.

The 23-story, 241-room hotel at the corner of Washington and Illinois streets is on pace to finish the year at average occupancy of about 50 percent, said David Catalon, the hotel's director of sales and marketing.

Average downtown occupancy is near 65 percent, according to Hendersonville, Tenn.-based Smith Travel Research. Meanwhile, some of the Conrad's nearest competitors, including Omni Severin and Westin Indianapolis, expect to achieve 70-percent occupancy.

It typically takes two or three years for any hotel to stabilize, particularly one like the Conrad that is seeking to "pioneer" the luxury market as the city's first five-star hotel, said Mark Eble, a hotel consultant and regional vice president for Philadelphia-based PKF Consulting.

"Properties like this don't do zero to 60 in four seconds," Eble said. "Would they like to do better? Of course. But they've only been open a few months."

The $100 million Conrad is privately owned by the Kite family and Tom McGowan, founders of Kite Realty Group Trust. The property, developed with the help of $24 million in city incentives, also includes 16 condos.

McGowan declined to discuss the hotel's performance.

To measure success, hotels rely on a combination of occupancy and average room rates and compare their figures with competitors'. The Conrad considers its competitors the Canterbury, Omni Severin, Marriott Downtown and the Westin Indianapolis.

But the standard comparison is a bit of a stretch for the Conrad, since it competes in a market without a five-star hotel at rates much higher than its peers'.

Catalon would not provide the hotel's average room rate, but he said it's above $200, a robust figure compared with the downtown average of $112.

Sales officials at other downtown hotels say the Conrad has lowered its rates to fill more rooms. When the hotel opened, rates were around $279. For a recent weeknight, the rate was $229.

Conrad, a Hilton brand, doesn't want to command too high a rate because that might scare people away in new markets like Indianapolis, said Tim Benolken, a Chicago-based vice president of operations for Hilton.

Benolken said the hotel's early performance is on target and successful. He said combined occupancy and rate figures show the Conrad is getting slightly more than its expected share of the market.

But he'd like to do better and expects the numbers to improve as the Conrad begins to command more business from convention visitors. Those hotel rooms often are booked months or years in advance.

"People see the value in the hotel," Benolken said. "We just need to get more people to experience it."

The Conrad has dual challenges in Indianapolis: It's introducing a brand that isn't well-recognized in the United States, to a market without a comparable luxury product, Eble said.

The hotel was just the fourth Conrad to open in the United States, after New York, Miami and Chicago. And it was the first built from the ground up as a Conrad. Other luxury brands such as Ritz Carlton have more locations from which to recruit seasoned startup teams.

In the coming years, Eble expects the hotel's marketing programs and word-of-mouth business will gain more traction and the hotel will find its "equilibrium level."

The hotel put a lot of pressure on itself by entering the market promising five-star quality, said Chris Ratay, the Omni Severin's director of sales and marketing.

Even with a great hotel product, you still have to perform services as if the facility has been open for years, and Conrad is not yet up to speed, he said.

Nationwide, only 93 hotels earned AAA Five-Diamond classification for 2007. The Conrad has not yet been reviewed for the designation, which goes to hotels that provide the "ultimate in luxury and sophistication," along with service that anticipates customer needs.

"It's been difficult for them to deliver at that level," said Ratay, referring to both the Conrad's service and its restaurant, du Soleil. "I don't think that's a surprise to anyone. They're going to get there; it's just going to take some time."

Already, Conrad is cultivating regular corporate and leisure customers. And the hotel has become a favorite destination for NFL and NBA teams. Entertainers including Bruce Springsteen, Pink, Sheryl Crow and The Dave Matthews Band have stayed over.

Conrad ended the year on a strong note, exceeding fourth-quarter revenue projections by 30 percent, said Catalon, who spent seven years working for Ritz Carlton in New Orleans, Cleveland and Detroit.

Early projections for 2007, the Conrad's first full year in business, call for occupancy closer to the market average of 65 percent to 70 percent.

One area that's already gaining traction is the hotel's catering business. Conrad Catering Manager Raymond Ailstock said he gets four calls a day for weddings, and several companies picked the Conrad to host holiday parties this year.

Part of the challenge early on in selling catering was getting the word out to companies and individuals of the hotel's offerings and how accessible they can be, Ailstock said.

"We're going through growing pains, and we're learning," he said. "I think this is such a new thing to Indianapolis."

Even if the hotel finds its stride in the next few years, a new challenge looms on the horizon: more competition.

Two competing proposals for a new convention hotel, to be built in anticipation of a $275 million convention center expansion, include luxury hotel rooms.

A proposed 44-story InterContinental Hotel on Pan Am Plaza calls for 211 "luxury-level" rooms near the top of the hotel. And the second proposal, for a campus of hotels near White River State Park, includes a Renaissance Hotel with 180 rooms.

The addition of even more high-end rooms doesn't worry Bob Bedell, president of the Indianapolis Convention & Visitors Association.

"Keep in mind, we're talking 2010 here," Bedell said. "That's a long time for the market to mature and for demand to continue to grow."

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