As development in gateway U.S. cities increases, hotel companies are looking to smaller urban centers for upscale hotel development. In recent years, secondary markets have capitalized not only on growing demand from the meetings and incentive market, but on their unique cultural qualities to attract high-end travelers who are accustomed to high-end accommodations—and developers are taking note.
The MICE Market
In 2013, the Omni Nashville opened next to the city’s famous Country Music Hall of Fame and Museum and its new convention center. This location, Peter Strebel, SVP of operations for Omni Hotels, said, was ideal for an upscale hotel, especially one that could serve the Meetings, Incentives, Conferences and Expos (MICE) market. “Nashville was building a brand-new convention center,” he said. “We knew the demand for meetings and conventions was going to be very strong.
Omni already had success with this format in Fort Worth, Texas. When the property there opened in 2009, the city had just renovated and expanded its convention center. “They knew, in order to get the proper type of business, they would need a new headquarter hotel,” Strebel said. “That’s how we were attracted to Fort Worth. That project was extremely successful.”
Cleveland is also seeing hotel investment by its convention center, with a new Hilton slated to open next year. Teri Agosta, GM for the Hilton Cleveland Downtown, said that the team is already seeing “a high-volume of interest from various national associations and medically focused groups.” But beyond that, she noted, the development around the convention center has also promoted “the refurbishment of many public squares, pathways and a lake-access bridge,” as well as new restaurants. Other hotel companies are also looking to the city. Following its recent debut in Columbus, Ohio, Starwood’s Le Méridien brand is set to open in Cleveland in 2017.
Work & Play
Though the convention center was the primary attraction for Omni to develop a hotel, Strebel said the weekend leisure component helped seal the deal.
“The new and expanding convention centers are going to bring in new business,” he said, “but right after that, really, is the leisure component. Some of these cities only have 20 to 30 conventions. That’s not enough for the whole year.” To that end, when choosing a spot for development, the area must have a strong appeal for leisure travelers as well. “The second-tier cities, like Fort Worth and Nashville, they have a really good weekend and leisure component,” Strebel said.
Le Méridien’s move into Cleveland has a similar arc to Omni in Nashville. “Both leisure and business travelers seek destinations that have a growing appeal, from new and historic tourism attractions to arts and culture offerings,” said Anthony Ingham, VP of North American brand management for luxury and design brands at Starwood Hotels and Resorts Worldwide. “This applies to major cities as well as smaller ones, which drive growth from not only a tourism perspective but from a hotel development point of view as well. Creative professionals in idea-generating industries are fueling the arts scene, the culinary scene and design aesthetic in previously ‘off the beaten path’ locations—making these smaller cities more sought-after for both business and tourism.”
Le Méridien opened new hotels in Indianapolis; Charlotte, N.C.; and Columbus since December alone. The brand also opened a hotel in Tampa, Fla., last summer. Business travelers are certainly helping to drive development in these markets, Ingham acknowledged, but each city has qualities that boosted its appeal for the brand. “The burgeoning culinary landscape in Indianapolis and the growing arts scene in Columbus made these destinations particularly attractive for Le Méridien,” he said.
Upscale hotel brands will often attract professionals in those “idea-generating industries,” such as consulting, marketing, design and architecture, Ingham continued—and these industries are no longer bound to the global capitals like New York, London, Los Angeles and Hong Kong. “As the way people work becomes more mobile, this target audience of highly educated, well-traveled individuals are now living in and traveling to secondary cities,” he said.
Another benefit of developing hotels in second-tier cities is financial. Smaller cities may have prime space available for a better price than their first-tier counterparts, and local governments may be very eager to work with investors through various enticements, and the like. “Nashville was a great example,” Strebel said. “We worked with the City of Nashville, with the city government, with the mayor and really figured out a way that we could all be [in] a win-win situation there. Due to the fact that we’re a privately held company, we can fund these out of our own cash flow. We don’t have to go to banks or third parties for our funding. We’re a unique hotel model because you’re dealing with the owner, the developer, the brand and the manager of the hotel in the same company.
“That’s the same situation that’s happening again in Louisville,” he continued, noting the brand’s next planned opening in Kentucky. “The city is putting in a major expansion to the convention center there, and they haven’t had much hotel development in a long period of time. Between the convention center expansions and the new headquarter hotel, it brings a lot of demand for those cities.”
The strength of a city’s leadership is very important for hotel development, Strebel added. “I look at cities like Nashville and Louisville as very progressive, and they understand that in order to keep the business volume strong and growing, they need to invest in their cities.” Ten years ago, he noted, the area of Nashville where the Hall of Fame, Convention Center and Omni Hotel now stand was “desolate.” But with the business and leisure attractions—and the upscale hotel between them—other hotels (including an upcoming Westin that broke ground in December at a cost of $120 million) and restaurants are looking to cash in on the increased interest.
Omni’s next hotel is set to open in Louisville—where, as Strebel noted, the Kentucky International Convention Center is currently increasing its capacity. “There hasn’t been a lot of new hotel development in that market for a long time,” he said. The more than 30-floor, multi-purpose building will include a 600-room hotel that is one block away from the convention center. According to the city government’s website, the project is a public-private partnership, with Omni paying 52 percent of the development costs ($150 million) and the city and state providing 48 percent ($139 million), which includes a rebate of taxes generated by the project and the value of the land, estimated at $17 million.
When the project was announced, Karen Williams, president and CEO of the Louisville Convention & Visitors Bureau, called the hotel “a game-changer” for the city’s hospitality industry, noting that it would boost its convention business potential in a competitive marketplace. “Louisville currently hosts 12.7 million visitors each year, [and] a hotel project of this scope will help support and strengthen further tourism growth,” she said.
Beyond these cities, Strebel said that Omni is “actively looking at other cities in the United States” that are in the process of re-imagining their convention centers. “Also, [in] a lot of those cities, it’s a nice public- private partnership,” he said.
“We expand our brand footprint based upon careful consideration for each new hotel,” Ingham said of Le Méridien’s expansion plans. “We look for the perfect combination of the right location, with the right partner and the right opportunities,” he said. “Our hotel development is driven by all of these factors, including the appeal as either a leisure destination or as a hub for conventions and business travel.” Smaller cities, he added, have a unique destination story to tell.