Downtown Kansas City sees hotel boom

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Today, there are about 3,450 hotel rooms in Kansas City’s downtown, Crossroads and Crown Center areas. Two years from now, there could be more than 4,600, and that’s not counting the proposed 800-room convention center hotel tower, according to the Kansas City Star.

Civic leaders, while strongly advocating for the big hotel, equally laud nine smaller ones that have been announced or already are under construction. The “boutique boom,” they say, will help Kansas City stay in the big leagues of convention, business and tourism travel by adding more than 1,170 rooms to the current mix.

Last week, Cerner Corp. had to use 25 hotels ranging from Kansas City International Airport to suburban Johnson County to accommodate its annual Cerner Health Conference attendance. No convention planner wants that kind of shuttle service expense and logistics.

“It will be better to have more inventory downtown for big conventions,” said Ronnie Burt, CEO and the city’s chief convention marketer at VisitKC. “But it’s not just about conventions. What more hotel inventory will allow us to do is have different conversations with all kinds of business and leisure travelers.”

When major events occur — the Kansas City Royals reach the playoffs, Taylor Swift performs at the Sprint Center or runners converge for the Kansas City Marathon — it’s hard to find a downtown room, he said.

Those market forces are sparking developer interest from around the country. Even downtown’s residential boom is influencing the temporary lodging market, experts say; young adult renters in one-bedroom apartments don’t have a spare bedroom when family or friends come to visit.

So private investors and hotel companies are plunging into the boutique hotel market. They’re turning historic downtown buildings into guest lodging or building new inns from scratch.

On Friday, a Tennessee-based developer celebrated a topping-out event, signaling top-floor construction of its new 10-story combination Courtyard by Marriott and Residence Inn at 1500 Main St., just south of the downtown freeway loop.

Chartwell Hospitality, developer of the $46 million dual Marriott properties, found the Kansas City hotel market promising enough to plow ahead on its 257-room development without seeking any tax breaks or other public assistance.

Such confidence appears contagious. Two weeks ago, Florida-based developers visited downtown on a night when the weather was great and streets were packed. Their enthusiasm was evident when they visited the Economic Development Corp. of Kansas City to glean information about the market surge.

There is, of course, no crystal ball to ensure that the small-hotel market will still be hot two years from now, if and when the announced projects come on line.

“But lenders are willing to lend money now on multifamily apartments and hotels,” said Heather Brown, executive director of Kansas City’s Tax Increment Financing Commission, an agency that approved, for example, a property tax abatement to assist redevelopment of the historic Savoy hotel.

The company renovating the Savoy, 21c Museum Hotels, sought about $16 million in two kinds of tax increment financing incentives to help convert the building at 219 W. Ninth St. into 120 luxury hotel rooms at an estimated purchase and remodeling cost of $47.5 million.

Among the announced boutiques, six of the nine already have received or filed for property tax abatement or historic tax credits to assist in financing. Brown, at the TIF Commission, said getting those real estate incentives is based on professional analysis of the value the developments create.

“Existing taxes (on the property) are not redirected,” she explained. “The question asked is, ‘Do you want to continue with this property as it is or redevelop it?’ … You have to decide that the development wouldn’t occur but for the incentives.”

Burt, at the convention and visitors’ agency, said that with or without incentives, “the cost of entry is relatively low for a hotel that averages about 150 rooms. Now is the right time to get into a market that is trending upward on occupancy and average daily room rates.”

This year, Burt said, downtown hotel occupancy is running at 68 percent, with an average daily room rate of $104. That’s up 8.4 percent in occupancy over last year and up 4 percent in average room rate.

“I don’t see those trends slowing down,” Burt said. “The downtown area has gone through enormous change. But we need the support of the community to spend time making it successful rather than talking about how it might not work.

“We need to work with event organizers, sports teams, arts organizations, businesses and leisure travelers to sustain the trend.”

Big and small markets

In addition to the Marriott and 21c hotels, these projects land on the current small-hotel list:

▪ A Hampton Inn, with a proposed 74 rooms at 801 Walnut St., is an adaptive re-use of the historic six-story Gumbel Building. Developer Mark Patel announced the $5 million renovation in 2013 and sought historic tax credits and property tax abatement. The city’s Land Clearance for Redevelopment Authority granted a 10-year abatement package along with required payments in lieu of taxes.

▪ A Holiday Inn Express, with a proposed 75 rooms in a seven-story building at 417 E. 13th St., also is an adaptive re-use announced by Patel. It targeted the 100-year-old, vacant Interstate Building, which is listed on the National Register of Historic Places. The $9.5 million project also received a 10-year Land Clearance property tax abatement.

▪ The Aparium Hotel Group of Chicago and Agman Partners bought the historic Pabst Brewing Co. and Pendergast buildings in the Crossroads with intent to turn them into a 125-room hotel. The developers said this summer they plan to seek historic tax credits for the properties at 2101 and 2107 Central St. and start the conversion early next year.

▪ A Hotel Indigo is proposed for part of a $33.3 million Brookfield Building renovation at 101 W. 11th St. by Wisconsin-based Great Lakes Management Group and Kothe Real Estate Partners. The team has earned property tax abatement from the Chapter 353 Advisory Board, a Missouri urban redevelopment authority, to repurpose the vacant 12-story building into a combination boutique hotel with 113 rooms on floors two through nine and 27 apartments on the top three floors.

▪ A Hilton Home2Suites is slated for the southeast corner of 20th and Main streets by the Sunflower Development Group and True North Hotel Group of Overland Park. The $19 million extended-stay hotel proposes about 115 rooms. Recent negotiations focused on removing a giant billboard, paving the way for construction to begin next year on a five-story building adjacent to the new streetcar line. The project got city assistance to vacate the street viaduct on the site.

▪ An Embassy Suites is planned for a $100 million renovation of the former Federal Reserve Bank of Kansas City building at 925 Grand Blvd. Delta Quad Developers of Denver is working to convert the historic 21-story tower to a proposed 301-room family-oriented hotel, a full-service hotel size that nearly moves it out of the small hotel category. The developers will seek TIF assistance at a November hearing.

If and when the announced small hotels reach fruition, they will join four already renovated boutiques downtown: The Phillips, with 217 rooms at 106 W. 12th St.; the Ambassador, with 43 rooms at 1111 Grand Blvd.; the Aladdin, with 193 rooms at 1215 Wyandotte St., and the Hilton President, with 213 rooms at 1329 Baltimore Ave.

The existing small hotels continue to generate developer interest. Last week, Arbor Lodging Partners, a Chicago-based hotel company, said it acquired the Phillips and plans another renovation of the 1931-era building.

Lodging officials are quick to point out that these small hotels are important for reasons outside of conventions. They may take some big convention overflows, but convention planners generally don’t count on them when they decide where to locate their events.

“A boutique hotel, maybe with 150 rooms, will likely give a convention only 25 rooms,” Burt said. “We’d need six boutique hotels to get 150 rooms. Or a boutique may not offer any rooms at all. Convention planners want a large amount of inventory in two or three big hotels.”

VisitKC and City Hall want the proposed 800-room Hyatt at the convention center to add to Kansas City’s convention appeal, making it possible to draw larger groups and even two very large groups at once.

Currently, the city can present only four “bigs” in walking or easy shuttle distance to the convention center: the Sheraton Crown Center, with 730 rooms; the Westin Crown Center, with 724 rooms; the downtown Marriott, with 946 rooms, and the Crowne Plaza, with 385 rooms.

Burt said anyone worried about possible overdevelopment should understand that loyalty or rewards programs fuel development interest by many hotel companies. He said large numbers of business and pleasure travelers prefer to book rooms for their incentive programs. If a company doesn’t have a property in a specific market, they lose those travelers’ preferred business.

Economic development officials also focus beyond room counts.

“Hotel guests don’t just come in and never leave the hotel,” Burt said. “They spend money in the community, they make an economic impact, they fuel job growth. Just look at the downtown restaurants when a big event is in town. Ask the servers if they’re happy, if they’re delighted to be making a good income. That’s the ripple that hotels put out into the community.”

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