Kite, Mansur, White pitch airport hotel

Three developers are vying for the chance to build a four-story, 250- to 300-room hotel connected to the new $974 million midfield terminal and garage at the Indianapolis International Airport.

While developers are confident there is demand for a high-end, on-site hotel, some say it could face stiff competition from nearby downtown hotels.

"It's a little bit of a pioneering effort for Indianapolis to do," said Rob Hunden, a hospitality consultant with Chicago-based Hunden Strategic Partners. "But Indianapolis can surprise people in a good way."

Indianapolis-based Mansur Real Estate Services wants to build a 300-room Westin. Locally based KMI Realty Advisors Inc. would develop a 254-room Hilton to be owned by KMI Development LLC, a corporation owned by local developer Al Kite. That group's plans include the possibility of expanding to 404 rooms. And Merrillville-based White Lodging Services Corp. pitched a 250-room Marriott.

All the proposals call for average daily room rates of roughly $150 and each proposed about 12,000 square feet of meeting space.

The Indianapolis Airport Authority asked for the proposals as part of the new midfield terminal construction. The authority said any hotel pitch must include at least 250 rooms and enough meeting space to fit a business model derived from a study it commissioned.

HVS International finished the study in late 2004 and found that Indianapolis International, though not a hub airport, would support a hotel with "first-class accommodations" and facilities to host business travelers who would fly in specifically for meetings at the airport.

The authority said developers should assume they would need to finance 100 percent of the project, but that it would be open to participating financially in the project.

None of the three groups disclosed project costs, and all said financing would be subject to negotiations with the Airport Authority. Hunden said construction costs have gone up in the past few years and can easily run $200,000 per room, putting total costs in the $50 million to $60 million range.

Partial funding or low-cost financing from the Airport Authority may prove crucial to the deal's feasibility, he added.

"There is a question of viability for these public-private type of ventures," Hunden said. "Usually, there is a [financial] gap there."

He said the authority's meeting-space requirement is more than industry standards. The requirement breaks out to roughly 50 square feet of meeting space per room, above the average of 30 to 35 for non-meeting-focused hotels. Hotels whose model caters specifically to meetings range from 60 square feet to 80 square feet per room, Hunden said.

"Typically, you see major meeting hotels in hub airports," he said. It's still fairly rare to see on-site airport hotels in non-hub cities, he said, though Tampa, Fla.; Hartford, Conn.; and Pittsburgh, Pa., all have them.

Indianapolis also presents a challenge in that travelers can get downtown to more night life and amenities fairly easily.

Developers conceded that downtown competition figured into their assessments, but they were optimistic the airport would generate enough demand to stand up as a separate market.

"[The downtown market] was a concern because you can be downtown in 10 minutes," said Jeff Lynch, senior vice president of KMI Realty Advisors. "But there are a separate set of people who stay at airport hotels for convenience and to hold meetings."

More than two-thirds of downtown's hotel business comes from meeting and convention business–a mostly unique group from those who would want to stay at the airport, said Deno Yiankes, president of White Lodging's development and asset management division.

But other factors work in the hotel's favor, Hunden said. There will be businesspeople staying overnight before catching an early-morning flight and the airport hotel would be the first choice. Developers are banking on that.

"The ability of travelers to have direct walking access to the terminal is a very significant amenity that shouldn't be overlooked," said White's Yiankes.

The new terminal's location is a bit away from existing hotels that serve the airport crowd, limiting immediate competition, Hunden added.

"They're going to get a lot of transient, overnight business staying there," he said. "But the question remains: How deep is that market?"

Nationally, airport hotels–including both those in and near airports–have been doing well, according to data provided by Hendersonville, Tenn.-based Smith Travel Research. For data collected through July, room rates are up 10 percent, to an average daily rate of $93.52, while occupancy rates are coming in at 71 percent.

"This is an extremely high increase in rate," said Jan Freitag, vice president with the firm. "Not even the urban, downtown hotel setting has seen this type of increase."

Mansur's president, Charles Cagann, said his group also took into account the fact that businesspeople from all parts of Indiana travel to Indianapolis in the afternoon for a flight early the next morning.

"They would stay right at the airport if they had the chance," he said.

When entering the new airport terminal, traffic will first flow directly toward the hotel, which is slated to be built in front of a massive, five-level, 7,000-spot garage. Behind the garage will be the new terminal, which features a modern, open design.

All groups conceded it was a design challenge to make sure their hotel wouldn't be overwhelmed by the garage, but one said the placement itself is a marketing tool.

"Anybody driving into the new terminal will be looking right at this new facility," Mansur's Cagann said. "You can't ask for a better location from a marketing standpoint."

Each group said their design would incorporate materials to echo the look of the modern terminal. KMI's Hilton, designed by locally based Ratio Architects Inc., would include a central, four-story atrium with a separate, dramatic, V-shaped roof design that juts up and away from the hotel.

"We tried to give it a very modern look to complement the terminal design," he said.

White Lodging Services' plans, designed by the Chicago office of St. Louis-based Hellmuth Obata & Kassabaum Inc. and locally based CSO Schenkel Shultz, stretch the proposed hotel almost the length of the garage, echoing the modern look of the terminal with a stylized glass roof over portions.

"[Our plan] actually makes the adjacent garage an integral component," Yiankes said.

Airport Authority staff hope to make a recommendation to the board on a favorite design in the next 30 to 45 days, according to Jay McQueen, who is supervising the bidding for the authority.

The terminal, hotel and garage are scheduled to open simultaneously in the fall of 2008.

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.