NAIOP Hotel Development Panel…
We recently attended the NAIOP Hotel Development Panel Breakfast in Portland, OR and got a sneak peek at what some of the active players in the industry think about the Portland Hotel Market.
Panelists included:
-Kasia Russell, Managing Director for HVS Consulting & Valuation
-Homer Williams, Chairman of Williams & Dame
-Nate Gundrum, Director of Development at Mortenson
-Will Balinbuin, VP of Acquisitions at Sage Hospitality
-Kimo Bertram, VP of Acquisitions with Hyatt Hotels
Here are some of our key takeaways from the event…
- Portland, OR has a strong hotel market – In 2015 the US had an average ADR of $125 and Occupancy of 65%. Portland, OR had an average ADR of about $200 and Occupancy of 80%. In the summer months Portland’s ADRs were reaching between $250 and $300 with Occupancy around 95%. While some experts think that Portland’s peak is just around the corner (summer of 2016) others think it’s a little further down the road. It all depends on how the market absorbs the new supply coming down the pipeline.
- People are moving to Portland – It is said that… “Seattle and San Francisco import 22 year olds and export 34 year olds.” And where do all those 34 years old earners go to buy a home? … Portland, OR.
- Branded vs. Independent in Portland, OR – It’s all about what the Millennial’s want and what they want is something exciting and authentic. This is why the Independents do well in Portland and why the Branded are evolving. If you go into the Residence Inn in the Pearl District it doesn’t look like any Residence Inn you’ve seen before. The Branded have the benefit of strong marketing and a strong reservation system. The independents have experienced atypical success in Portland because they source locally (local beer, local food, local art) and that is what Portland is about. It’s the authenticity that draws people here.
- AirBnB – AirBnB is for the leisure traveler who is rate sensitive, not for the corporate traveler who wants certainty and points for their family vacation. AirBnB has had an impact in areas where events draw large numbers of people, like San Francisco. In these areas, AirBnB lowers the compression of ADRs. It has been difficult to gage the impact AirBnB has had in Portland because that impact isn’t large enough to measure. It’s easier to measure the impact in smaller towns like Walla Walla, WA where AirBnB can easily take a sizable portion of rooms in the market.
- Hotel Companies are losing money not being in Portland – Hyatt (building the 600 room Convention Center in the Lloyd District) found that Portland, OR is the most requested city where they couldn’t previously book people. They have tracked around $170 MM in lost revenue of the past 5 years.
- What other cities does Portland compete with nationally? – Developers and investors interested in Portland are also looking at towns like Denver, Austin and Nashville. Portland is “weird” like these cities but with more natural barriers and having the benefit of being close to Seattle and San Francisco. Sage hospitality would like to develop a couple more hotels in Portland. With the building of the Convention Center Hotel, Portland will be able to compete with Seattle, Spokane, Sacramento and Boise.
- The hot areas of development in Portland – Other than the Central Business District in Portland, Washington County is seeing the most growth. This area hadn’t seen any new development since 2006 and now 900 new rooms are in the works. This area has a lot of residential growth as well.
- One of the challenges to developing in Portland, OR – There is uncertainty that comes with the planning process in Portland. There are a lot of different influences within the neighborhoods and this creates a more expensive planning process. For example, a hotel built in Minneapolis had a planning stage that cost $800,000 and a similar hotel built in Portland had a planning stage that cost $2,000,000.
- Hotels are risky business – Hotels are very sensitive to cycles and operations fluctuate daily. Outside events like the world economy and terrorism have a large impact on hotels. But with high risks also come high returns. Hotel are only 10% of all real estate but they also sometimes beat inflation. Things that keep hoteliers up at night include the strengthening of Unions and maintaining relevancy with the quickly changing tastes of customers.
- Construction rates – Construction rates are rising but so far hotel values are keeping pace. The rates are escalating in Portland at about 5 – 6 % annually.
- Who is buying now? – The REITs are slowing down and Private Equity is coming back.
