Development pipeline on the rise for full-service hotels

The pendulum continues to swing in favor of increased interest in development and acquisition of full-service hotels. Strong performance by the segment and a rebound in group business is leading many developers to move away from select service and into full-service lodging.

Many full-service hotels are in the upscale and upper-upscale chain segments, two tiers of the industry that have performed well in 2015. Through September, both segments had occupancies above 75 percent, with strong growth in average daily rate and revenue per available room.

ADRs in the upscale segment rose 5.2 percent through September, with RevPAR increasing 6.1 percent. Upper-upscale properties registered a 4.4-percent increase in ADR and a 5.4-percent rise in RevPAR.

The forecast for 2016 for the two segments is also rosy. Upscale hotels are forecast to lead all segments in growth in ADR (up 5.6 percent) and RevPAR (6.4 percent) in 2016.

Growing pipeline

According to Lodging Econometrics, at the end of the third quarter the construction pipeline was especially strong in the upscale segment with 1,025 hotels and 135,600 rooms under development. The number of rooms in the upscale pipeline represents 21 percent of the current supply. The upscale pipeline increased by 13 hotels and 1,894 rooms between the second the third quarters of the year.

Development is less robust in the upper-upscale tier with 165 properties and 38,862 rooms. The room count under development equals 6.5 percent of the current supply in the segment.

While 240 hotels and more than 32,000 rooms are scheduled to open this year in the two segments, much of the supply under development will come online in coming years. In 2017, more than 48,000 new rooms will open; in 2018 and beyond, openings will include more than 79,000 rooms.

Ripe for acquisitions

Full-service hotels have also been the targets of capital looking to acquire lodging properties.

In the second quarter, according to Lodging Econometrics data, 22 hotels in the upper-upscale segment and 62 in the upscale tier were sold. Properties sold in the upper-upscale segment for an average of $234,268 per room; the per-room sales average was $166,526.

Among those changing hands during the third quarter were seven Doubletree by Hilton properties, four Embassy Suites and three Kimpton Hotels. The Kimpton properties sold for an average of $596,107 per room.

Hotel ownership companies and private equity groups are snatching up full-service hotels. In September, Blackstone Group announced the $3.93-billion acquisition of Strategic Hotels & Resorts. The Strategic portfolio of 18 properties is all full-service, upper-upscale and luxury full-service hotels.

In early December, InSite Group acquired three full-service hotels: a 277-room Sheraton in Tampa, Fla.; the 391-room CoCo Key Resort in Orlando; and a 157-room former Clarion Suites in New Orleans.

Other recent transactions in the full-service segment include Omni Hotels & Resorts’ purchase of the Omni Mount Washington Resort in New Hampshire and Greenwood Hospitality Group’s acquisition of a 302-room Doubletree by Hilton at the Wichita, Kan. Airport. And a joint venture between Rockpoint Group, Highgate and Hotel Asset Value Enhancement  agreed to purchase the 471-room Renaissance Boston Waterfront Hotel.

For most of the year, TravelClick has been monitoring healthy increases in group business bookings, most of which go to full-service hotels. Its most recent report at the end of November showed a 3.8-percent deceleration in group commitments and bookings. At the same time, transient bookings for both business and leisure have continued to climb. The slight downtick in group bookings might reflect hesitancy by hotel operators to take group business over generally higher-rated business transient bookings.

In another survey, from Destination Hotels & Resorts, 89.1 percent of meeting planners said their budgets for 2016 would be higher (mentioned by 31.5 percent of respondents) or the same (57.6 percent) as they were in 2015.

Pictured: In June, JMH Development and Madden Real Estate Ventures opened the 235-room Aloft South Beach in Miami Beach. Sage Hospitality operates the property.