Hotel glut developing downtown: Lodging projects could lift room totals by 40 percent

The 10 hotels either under construction or in the planning stages downtown would increase the amount of rooms in the city’s center more than 40 percent-a far greater number than the market likely could absorb, experts fear.

The projects are largely in response to Lucas Oil Stadium, slated to be completed by August 2008 and an expansion of the Indiana Convention Center that will nearly double its size by 2010.

If all 10 hotel projects come to fruition, almost 2,300 rooms will be added to the 5,525 that already exist downtown, according to the Indianapolis Convention and Visitors Association.

Even half that number would be considered major, said Mark Eble, a hotel consultant and regional vice president for Philadelphia-based PKF Consulting Corp.

“The question one has to ask himself is, ‘Who’s going to be winners and who’s going to be losers?'” Eble said. “The correlation will be the distance from the hotel to the convention center. The farther away you are, the worse off you are going to be.”

Most of the additional supply will be confined to a complex of four hotels anchored by a JW Marriott convention hotel that will add more than 1,300 new rooms. The $250 million campus will be built on land that’s now home to a 235-room Courtyard by Marriott and a TGI Friday’s restaurant across from Victory Field.

A project by south-side developer J. Greg Allen would bring a 240-room Le Meridien hotel and a 150-room Aloft hotel to surface parking lots along Pennsylvania Street. And, most recently, Prince/Alexander Architects Inc. divulged that it is working on a plan to replace its headquarters on West Merrill Street near the new stadium with a $47 million, 24-story hotel and condo development called West Merrill Tower. The tower would have about 200 hotel rooms.

Near the stadium as well, several other hotels are under construction or in the works. But most are limited-service, suburban-style models by Fishers-based Dora Brothers Hospitality Corp.

The company, which operates a 108-room Holiday Inn Express along Missouri Street, is building a 112-room Staybridge Suites and a 130-room Comfort Suites along South West Street. It’s also planning a 140-room Hotel Indigo along West South Street.

The spate of rooms that could be available before the completion of the Convention Center expansion borders on oversupply, said Rob Hunden, president of Chicago-based hotel consultancy Hunden Strategic Partners.

“It’s definitely going to be tough for Indianapolis to absorb those hotels, especially if they all come online at the same time,” he said. “The pressure will be on the convention center to generate more business.”

Competitive business

Construction on the $275 million expansion is slated to begin in late 2008, after the RCA Dome is razed. When finished, the convention center will boast 747,000 square feet of exhibit space, including 183,000 available at the new stadium.

The center hosts 40 citywide conventions a year, said Bob Schultz, spokesman for the ICVA, which hopes to add 17 to 23 annual conventions to support the additional space and hotel rooms.

For the hotels to truly prosper, the center often will need to host more than one convention at the same time, said Tim Worthington, owner of the local hospitality consultancy The Worthington Group.

“Without the Convention Center and Lucas Oil Stadium, nobody would be doing this,” he said. “Sometimes competition is good. It’s sort of like what restaurants think: the more choices, the better.”

Yet the hospitality industry already is plenty cutthroat. The hotel occupancy rate in Indianapolis for the first quarter was 56.2 percent, lower than the national average of 59.5 percent, but slightly better than the 54.8-percent average posted by eight other regional cities, according to PKF Consulting’s quarterly report.

Downtown hotels normally fare better than their suburban counterparts, however. Indianapolis’ downtown hotels posted a 69-percent occupancy rate, according to the ICVA.

Nationwide, PKF expects new-room supply to reach an annual rate of more than 100,000 rooms from 2008 through 2011. While the totals are less than the levels of new supply that came online from 1997 to 2000, the effect of new competition cannot be ignored, the report said.

What the local impact on downtown hotels will be depends largely on how many new ones are actually built. Although 10 are in the construction or planning stages, it’s doubtful all will be completed, Eble said.

“There’s a Darwinian selection process that occurs,” he said. “As they boil up from the financing and approval process, the big dogs kind of come to the top.”

Fears raised before

Locally, the fear of a hotel glut is nothing new. Concerns previously surfaced in 1998, when city officials announced plans for a 615-room Marriott, the city’s largest, and a 332-room Adam’s Mark Hotel. The Adam’s Mark on West Market Street since has been converted to the Hilton Indianapolis.

The city, led by former Mayor Steve Goldsmith, had hoped the hotels would boost its odds of hosting the 2000 Republican National Convention, but Indianapolis lost out to Philadelphia.

Hoteliers were less enthused about the prospect of new competition, however. An executive of Westin Hotels & Resorts, which owns the 573-room Westin Indianapolis at 50 S. Capitol Ave., said then that the new rooms would drive the occupancy rate down to the low 60-percent range, an unprofitable level.

Jittery general managers are echoing similar sentiments again. Directors of the Indiana Hotel & Lodging Association convened late last month, where they broached the issue. The IHLA hasn’t taken an official position, nor will it, President John Livengood said. Nonetheless, it will remain on his members’ radar screens.

“Whenever there are stories about new hotel rooms, there’s always concerns,” he said. “The investors in these new properties have to ask themselves, ‘How fast can the market absorb these rooms?'”

Making matters worse is the loss of the annual Formula One race, although Livengood is encouraged about the arrival of replacement MotoGP.

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.

{{ articles_remaining }}
Free {{ article_text }} Remaining
{{ articles_remaining }}
Free {{ article_text }} Remaining Article limit resets on
{{ count_down }}