Healthcare, tourism drive Cleveland’s hotel pipeline

A reinvented Cleveland economy has attracted the interest of hotel developers, and the market could see a 15-percent increase in room inventory by 2017.

Once an aging Rust Belt city fueled by the automobile and steel industries, Cleveland, has undergone a significant transformation in recent years with the region’s new economy driven by health care and tourism, including both leisure and group business.

With the surging economy has come a flurry of hotel development in both the downtown and suburban areas. According to Lodging Economics, 25 hotel projects with 3,452 rooms are in the development pipeline in the Cleveland market. Eight properties are under construction, 12 more will begin construction in the next 12 months and five hotels are in early planning stages.

If all hotels in the pipeline open as planned, the market will see a 15-percent increase in available rooms by 2017.

“When looking at the Cleveland market, you have to consider downtown activity versus suburban activity,” said David Sangree, president of Hotel & Leisure Advisors, an Ohio-based consulting firm. “Much of the activity downtown is due to the new convention center. When you add a convention center to market that really didn’t have an effective one for years, it creates high expectations for new groups and conventions coming to the city.”

Booming downtown
The centerpiece of downtown development is a 28-story, 600-room Hilton hotel that opens next spring. The property, which was publicly financed by Cuyahoga County, will be connected to the convention center and the new Global Center for Health Innovation, a merchandise mart for the region’s growing medical infrastructure.

Several major hotels opened in downtown Cleveland in the past two years, including a 135-room Aloft Hotel; the 156-room The 9 at the Metropolitan, an Autograph Collection property; and the 484-room Westin Cleveland, a conversion of a former Crowne Plaza. Also under development downtown are properties from Kimpton, Drury Hotels and Le Meridien.

The new 225,000-square foot convention center opened last year and will host the 2016 Republican National Convention, which tourism officials hope will be a catalyst for additional group and convention business.

“The RNC has the potential to put Cleveland on the map as a city of choice for large-scale meetings,” said Walter Isenberg, president and CEO of Denver-based Sage Hospitality, developer and operator of the Westin Cleveland. “Denver hosted the Democratic convention in 2008 and we’re still feeling the halo effect from that event. The convention went flawlessly and got people to think about Denver in a different way. The RNC has the same potential for Cleveland.”

Sangree agreed.

“From a hotel point of view, the convention will be a one-time thing, but assuming it all goes well, it’s also a tremendous opportunity to build the reputation of Cleveland as a destination,” said Sangree.

Despite new additions to supply, performance of the city’s hotels has been improving. According to Destination Cleveland, year-to-date through May occupancy was 59.2 percent, up from 56.3 percent the year before. Likewise, average daily rate rose 4.8 percent to $99.49, and revenue per available room increased 10.2 percent.

Suburban hotbeds
According to Sangree, much of the city’s suburban hotel development is a response to aging supply. The western suburbs, in particular, have been hotbeds of development, with two hotels opening in the past two years and four in the pipeline. A new American Greetings headquarters complex in Westlake and expansion of Hyland Software in the same city are spurring hotel development in the western suburbs.

“There hasn’t been any new supply on the west side for about 10 years, so there is pent-up demand for new product,” Sangree said, noting the new development is prompting owners of existing product to upgrade their facilities. For example, a 267-room DoubleTree by Hilton opened this month in Westlake following a multimillion-dollar renovation and conversion of a long-time Holiday Inn.

Sangree believes additional hotel development is possible in the Cleveland market on a case-by-case basis.

“The Cleveland market still has some older hotels, and the market tends to like newer properties,” he said. “There are always opportunities, but they must be analyzed specifically to see if they pencil out in terms of cost. The county is paying the development budget for the Hilton under construction in downtown Cleveland. It is extremely high and probably couldn’t be justified by a private developer.” --Ed Watkins