10 years after Katrina, New Orleans hotels stage a comeback

It took nearly 10 years, but the New Orleans hospitality business has fully recovered from the devastating effects of Hurricane Katrina, which struck the region in on Aug. 29, 2005. By the end of 2014, hotel occupancies in the metropolitan area had surpassed previous peaks.

And, according to a report from HVS, occupancy for the city’s hotels remains well above that of the rest of the U.S. Unlike many other markets, which are expected to experience occupancy declines as new supply opens over the next several years, occupancy in New Orleans is expected to stabilize through 2018, even with the introduction of new hotels.

And the city is seeing a renaissance in hotel development, transactions and renovations.

With 252 properties and 37,083 rooms, the greater New Orleans hotel market has as many hotel units as it did before Hurricane Katrina devastated the city, closing some hotels and depressing visitation to the city for many years.

In 2014, more than 9.5 million visitors came to New Orleans, up 2.6 percent over the previous year. Tourism spending was $6.8 billion, up 5.3 percent and the highest levels of spending in city history. By contrast, in 2006 visitor numbers had dropped to 3.7 million with $2.9 billion in visitor spending.

Other signs point to the city’s tourism comeback. According to the New Orleans Tourism Marketing Corp., money collected from occupancy taxes in the city is on pace to reach a five-year high, with $43 million collected so far this year. The tourism organization has asked city leaders to increase occupancy tax rates to further promote the destination.

The pipeline

According to Lodging Econometrics, the construction pipeline in the New Orleans market comprises 26 hotels with 3,197 rooms. Nine properties with 1,124 rooms are under construction, and construction should start on seven more hotels within 12 months.

Of hotels in the pipeline, 19 are in suburban locations, with 12 properties and 1,125 rooms in the New Orleans East/Slidell submarket. Three brand companies—Hilton Worldwide, Marriott International and InterContinental Hotels Group—account for 14 of the 26 hotels under development.

While seven properties are expected to open in 2015 with four more to open next year, most of the openings are expected in 2017 (five hotels) and 2018 and beyond (12 properties.)

The market has been active this year and last, with a number of openings, conversations and sales.

In November 2014, NewcrestImage opened a 220-room AC Hotel in the city’s French Quarter. The project, an adaptive reuse of a former bank building, is the brand’s first property in the U.S. Earlier this year, Pacific Hospitality Group bought the hotel for about $60 million, or $273,000 per room.

Several Starwood Hotels & Resorts Worldwide properties opened in 2015 in New Orleans. In March, HRI Properties opened a 188-room Aloft Hotel as part of a downtown mixed-use complex. And in March, a $29-million conversion of a former W Hotel produced a 410-room Le Meridien.

In August, Al Copeland Investments completed a $16.4-million renovation of Copeland Tower in suburban Metairie and converted it to the 251-room Best Western Plus Landmark Hotel & Suites.

Another conversion opened in June when Provenance Hotels and GB Lodging, in partnership with Woodbine Development, transformed the Ambassador Hotel into a 167-room boutique property, the Old No. 77 Hotel & Chandlery.

Projects under development in the market include a $10-million conversion of the Baronne Inn and Suites to a 103-unit Fairfield Inn & Suites. New Castle Hotels & Resorts is owner and operator of the property.

Buying and selling

According to HVS, the New Orleans market had 13 hotel transactions from November 2014 to May 2015. The largest deal was the DoubleTree by Hilton New Orleans, which sold for $83.5 million, or $232,425 per room.

Since then, Ashford Hospitality Trust purchased the 226-room Le Pavilion Hotel for $62.5 million, or $277,000 per room. Remington Lodging, an Ashford affiliate, assumed management of the hotel.

HVS reports hotel values in New Orleans rose nearly 50 percent in 2010, a year following the market’s low point, and values have increased every year since. HVS forecasts values to decline somewhat in 2017 as new supply comes online.