Commercial Real Estate and ICVA and Conventions and Construction and Tourism & Hospitality and Hotels and Real Estate & Retail

ICVA chief: Downtown Indianapolis will need another big hotel

February 13, 2010

The 1,000-room J.W. Marriott isn’t even finished and support already is emerging for a second downtown hotel that would rival it in size.

One of the most vocal advocates is Indianapolis Convention & Visitors Association Executive Director Don Welsh, who is confident demand will be strong enough in five years to warrant another large hotel.

Five years from now, the city will have hosted NCAA men’s Final Four basketball tournaments in 2010 and 2015, and a Super Bowl in 2012. In addition, the Indiana Convention Center is expected to draw more visitors once the expansion is completed in February 2011.

“I realize it’s a pretty bullish statement, but it’s time to start thinking about another 1,000-room hotel,” Welsh said. “Our success in booking business will drive it.”

Welsh’s optimism could be expected. As the city’s top tourism cheerleader, his job is to champion Indianapolis as an attractive location for meetings and conventions. And a larger convention center should improve the city’s status as an appealing destination.

Even so, the ICVA is getting more aggressive in its marketing efforts to ensure the additional meeting space is occupied as much as possible. An extra $1.5 million the association is receiving from the city will help it hire four additional salespeople and promote Indianapolis in more cities.

The J.W. Marriott, rising near the Indiana Convention Center expansion, might not contain Indianapolis’ rising convention trade. (IBJ Photo/ Perry Reichanadter)

Another $5.4 million was donated to the ICVA last month by the Dean and Barbara White Family Foundation. The grant is earmarked for convention and tourism marketing.

The convention center’s $275 million expansion adds 420,000 square feet to the mix. Including Lucas Oil Stadium, the ICVA will have 1.2 million square feet of convention space, 65 percent more than it had in the convention center and RCA Dome. That will push the city rank in convention space to 16th from 32nd.

So, will the additional convention space tempt another developer to build a complement to the J.W. Marriott? Possibly, said Mark Eble, a hotel consultant and regional vice president for Philadelphia-based PKF Consulting Corp.

“It’s not flawed logic,” he said of Welsh’s vision. “The big ‘if’ is that developers will certainly wait until they see the absorption of the J.W. before they put the shovels in the ground.”

Downtown Indianapolis boasts nearly 5,500 hotel rooms. Adding 1,600, including 600 from three smaller hotels that will accompany the J.W. Marriott as part of the Marriott Place project, will increase the total almost 30 percent.

The downtown hotel occupancy rate in 2009 grew to 67.4 percent from 62.8 percent the previous year, a particularly strong increase given the severity of the recession. Nationally, the rate fell 8.6 points to 55.1 percent, according to Nashville, Tenn.-based Smith Travel Research.

Hospitality consultants agree the influx of rooms from the J.W. Marriott will keep Indianapolis’ downtown occupancy rate from growing for several years. How quickly the city can absorb the additional hotel rooms depends upon the timing of an economic recovery and ICVA’s success in luring more conventions.

What’s clear to Tim Worthington, owner of Indianapolis-based hospitality consultancy The Worthington Group, is the uncertainty in the downtown market.

The expanded Indiana Convention Center will host more activity, but developers will track hotel absorption carefully before building another hotel. (IBJ Photo/ Perry Reichanadter)

“I know what the hotel market is in this town right now, and it’s tough,” Worthington said. “Everyone is nervous about the J.W. coming in.”

The ICVA last year hosted 37 “citywide” conventions, those in which demand for hotel rooms were greater than the downtown capacity. This year, 35 are scheduled. However, despite two fewer large conventions, room nights booked for 2010 total 330,572, a slight increase of less than 1 percent from last year.

To help the market absorb the Marriott rooms, Welsh estimates his organization ultimately will need to host 65 to 75 large conventions annually.

Whether the additional meetings attract enough visitors to justify a second, large hotel remains to be seen. But at least one hotelier would welcome new competition.

Greg Tinsley, general manager of the Conrad Indianapolis, said it should be embraced rather than feared.

“If there is a necessity for additional hotel rooms, that means that [Welsh] and his team were successful in acquiring additional business to the city,” Tinsley said. “Everyone benefits from it.”

Construction of the J.W. Marriott and the commercial credit crunch put the brakes on several hotel projects proposed for downtown.

Just three years ago, plans for as many as 10 hotels would have added almost 2,300 rooms. A project by south-side developer J. Greg Allen would have brought a 240-room Le Meridien hotel and a 150-room Aloft hotel to surface parking lots along Pennsylvania Street, for instance.

But the projects didn’t have the benefit of private financing. White Lodging, which, along with locally based REI Investments, is developing the J.W. Marriott, owned by Bruce White. His father, Dean White, is the billionaire owner of Merrillville-based Whiteco Industries.

“They didn’t have to go to the markets [for funding],” said John Livengood, president of the Indiana Restaurant & Hospitality Association. “It’s almost a gift to the state of Indiana, in a way.”•

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