By Ashley Fletcher Frampton
aframpton@scbiznews.com
Published Nov. 10, 2010
The hotel business in Charleston is bouncing back after a tough 2009 and has room to grow, according to representatives of three companies that have taken on new projects locally.
“Charleston is in a good place versus a lot of other markets out there,” said Michael Tall, senior vice president of Charlestowne Hotels, a company that manages 24 hotels in the Southeast, including 12 in Charleston.
Tall was one of three speakers in a panel discussion about hotel real estate on Tuesday put on by the College of Charleston’s School of Business.
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Charlestowne Hotels opened The Restoration on King, a 16-room boutique hotel at Wentworth and King streets in a building that had been luxury condos, in April. Tall said the concept is innovative for Charleston’s historic district and could be replicated elsewhere in the city.
Tall said 10 different investors have recently talked to him about opening boutique hotels downtown, below Calhoun Street.
“People have the money and want to spend it,” Tall said. “It’s just finding how to make it work.”
Other recent investments
Given this year’s improvement, Charleston hotels could see a return to 2007 operating levels by 2012, which is a year or two sooner than once anticipated, said Steven Nicholas, an executive vice president with Atlanta-based Noble Investment Group.
Earlier this year, Noble Investment Group acquired the 126-room Holiday Inn Historic District at Calhoun and Meeting streets, which it plans to convert to a Courtyard by Marriott hotel.
The company also bought property adjacent to the hotel, where it plans to add 50 hotel rooms and 2,500 square feet of meeting space.
Nicholas said Noble Investment Group, which seeks out underperforming hotels, has been looking to purchase property in the Charleston hotel market for some time. He said the city is attractive, in part, because of its planning for long-term economic development.
The addition of a new Courtyard by Marriott downtown could draw business away from the Courtyard by Marriott on Lockwood Drive, said Jane Brophy, vice president for full-service operations for JHM Hotels, the Greenville-based company that owns and operates the Lockwood Drive property.
But the competition will drive the existing Courtyard by Marriott to focus on a different niche within the market, and that probably means more group business instead of transient business, Brophy said.
JHM Hotels shifted the operations of the nearby Charleston Marriott in a similar direction, adding 10,000 square feet of meeting space, after realizing its leisure business was underperforming, Brophy said.
“We needed to become a group house,” she said.
Growth markets
Tall said the Charleston hotel market has room for growth, though he cautioned that new supply could hurt existing properties in the area.
The city of Charleston and the S.C. State Ports Authority’s plans to move the cruise passenger terminal farther north on Concord Street could open opportunities in that area, he said.
Already, the hotel industry is benefiting from the State Ports Authority’s increase in cruise business this year, Tall said. His company’s hotels have seen a boost in demand for one-night stays before and after cruises.
“It’s clear as day,” Tall said.
Echoing other analysts’ recent observations, Tall said that The Boeing Co.’s presence in North Charleston has strengthened business in that submarket.
Southwest Airlines’ plans to serve Charleston starting in March should bring another boost, he said. The discount carrier’s passengers tend to be leisure travelers, and leisure travelers constitute the largest segment of Charleston’s visitors.
“That is our traveler,” Tall said.
This summer, Charleston hotels gained business that would otherwise have gone to states on the Gulf of Mexico if not for the BP oil spill, Tall said. He said he hopes those travelers will choose to return to Charleston next summer.
Acquisitions and financing
Nicholas said national hotel chains are looking to add units, and Noble Investment Group has capital to spend on existing hotels in markets where hotel chains want to be.
Tall said Charlestowne Hotels also is in expansion mode.
In the past two years, the company has added 16 properties to its portfolio. Most of those are within a few hours of Charleston, but Tall said the company now is looking farther as it seeks to grow by 30% to 35% annually for the next five years.
JHM Hotels recently expanded its S.C. holdings with the purchase of the Hyatt Regency in downtown Greenville. Moving forward, Brophy said the company plans to rebrand some of its lower-end hotels.
Panel speakers said that investors’ hopes of buying up distressed hotels at bargain prices haven’t come to fruition. Many groups started distressed hotel funds awhile back, Nicholas said, and most still have their money.
Most lenders don’t want to own hotels and are working with hotels that are struggling financially, he said. Some hotels have been sold through foreclosure proceedings, but those sales haven’t been at huge discounts.
Financing for hotels is more difficult to obtain these days, panelists said.
Brophy said lenders are digging into the details of transactions more so than in the past and requiring higher down payments. In general, closing a sale takes longer than in the past.
Although her company was able to get financing for its recent purchase in Greenville, “You just can’t show them a pro forma and they buy it anymore,” she said.
For new hotel development project, Nicholas said loans are “sparse at best.”
Reach Ashley Fletcher Frampton at 843-849-3129.
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