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Hotel Business – Market Focus: A Period of Growth in Memphis, TN

Hotel Business Newsletter

by Herb Warmbrodt

Warmbrodt Hotel Investments has the good fortune to be working on hotel projects in the Memphis, TN market. What we have learned is Memphis, TN is entering a period of growth with literally billions of dollars in development in a number of sectors.

These developments have resulted in excelled RevPAR growth in the market. STR reported RevPAR growth of 6.5% for the 12-month period ending February 2016. This growth was a direct result of ADR growth of nearly 6% and occupancy growth of approximately 1%.

Hotel investors have taken note of this growth also. According to data from Real Capital Analytics, there were 16 hotel transactions in 2015. Out of the 16, 13 transactions totaled approximately $125 million with an average price per key of $84,500.

Major Developments Affecting the Memphis, TN Hotel Market

Bass Pro at the Pyramid: The $135 million project opened in the first quarter of 2015 and transformed the Pyramid into a $535,000 sq. ft. retail sporting goods store and 100-room sports themed hotel. It is reported that annual attendance equals that of the legendary Beale St.

Beale St.: The Beale Street Entertainment District boasts more than 30 restaurants, clubs and retail outlets. Numerous special events, festivals, parades and fairs, along with nightly music attract more than four million tourists from throughout the world to this historic area. The 18,000-seat FedExForum is located near Beale St.

FedEx: FedEx has its world headquarters in the city and utilizes the Memphis International Airport as its hub. Approximately, 10,000 employees of FedEx are located in Memphis, TN.

Memphis International Airport: The airport is the second largest cargo airport in the world with more than 4.8 billion pounds of cargo shipped during 2014. Passenger traffic totals have been in a steep decline since 2008 when Delta removed the hub status from Memphis International after its merger with Northwest. Since 2009, passenger traffic has decreased at an annual average rate of 13%, but 2015 saw an increase of 1.64%. A $114 million concourse consolidation and renovation plan has begun; designed to reposition the airport to better attract additional low-cost carriers, such as Southwest Airlines. Construction is projected to be completed within five to seven years.

St. Jude Children’s Hospital: This major healthcare facility announced a six-year strategic plan that will include $1.2 billion in capital projects. These projects will transform the children’s cancer and research hospital’s 66-acre campus. Planned are three additional floors at the Kay Research and Care Centers; completion of a state-of-the-art Proton Therapy Center; a data center; housing facilities, parking and expansion of administrative, research and clinical office buildings. St. Jude is located within a 17,000-employee medical district, where five major hospitals and the University of Tennessee Health Science Center are located.

—Herb Warmbrodt, principal, Warmbrodt Hotel Investments

For more information regarding Memphis, TN and other markets, please contact Herb Warmbrodt at (913) 381-3737, or herb@whikc.com.


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Herb Warmbrodt participates in Brokers Roundtable at the Hunter Hotel Conference 2016

If you want to know precisely where the hotel industry is and where it is headed, there is no better place to turn to then the people who are on the front lines each and every day: brokers.
The buying and selling of hotels gives a glimpse into how the industry is faring, where the opportunities lie, market liquidity and the availability of debt.

During the Hunter Hotel Conference in Atlanta, HOTEL MANAGEMENT assembled some of the best and brightest brokers in the industry for an exclusive roundtable, sponsored by Access Point Financial, where these topics were discussed and debated.

So, where exactly do we stand as an industry? Find out in this roundtable teaser video.


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HOTEL INVESTMENT OPPORTUNITIES Value Place Memphis (Northeast) & Value Place Memphis (Riverdale)

Warmbrodt Hotel Investments has been retained as the Exclusive Agent to extend to qualified principals, the opportunity to acquire the Value Place Memphis, TN (Northeast), or the Value Place Memphis, TN (Riverdale). The properties may be sold individually, however a package transaction is highly preferred.

Value Place Memphis, TN (Northeast) 

View the Executive Summary for more information.

INVESTMENT HIGHLIGHTS

  • Woodspring Suites branding unlocks significant upside in rate potential
  • Occupancy of over 92.5% for December 2015, growth expected to continue as a result of numerous construction projects in the Shelby Oaks area
  • Ideal extended stay market in a major metropolitan area with substantial demand generators
  • Operationally efficient, creating substantial income with any revenue increase
  • Delivered free and clear of management
  • Nationally recognized franchise and growing brand
  • Priced below replacement cost in good area
  • Memphis is a tourist destination, drawing more than 10 million visitors a year

Value Place Memphis, TN (Riverdale) 

View the Executive Summary for more information.

INVESTMENT HIGHLIGHTS

  • Woodspring Suites branding unlocks significant upside in rate potential
  • Growing Occupancy of over 85% for TTM December 2015, growth expected to continue as a result of numerous construction projects in the market
  • Ideal extended stay market in a major metropolitan area with substantial demand generators
  • Operationally efficient, creating substantial income with any revenue increase
  • Delivered free and clear of management
  • Nationally recognized franchise and growing brand
  • Priced below replacement cost in good area
  • Memphis is a tourist destination, drawing more than 10 million visitors a year

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Warmbrodt Hotel Investments and Ten-X Close Three Holiday Inn Properties: Billings, Montana / Cheyenne, Wyoming / Fresno, California

Warmbrodt Hotel Investments (“WHI”) and Ten-X, announced today the sale of three full-service Holiday Inn hotels.  The properties are located in Billings, MT, Cheyenne, WY and Fresno, CA.  The hotels were owned by an affiliate with TPG and sold for an undisclosed amount.  The listing price was $28,500,000.  Billings and Cheyenne were sold to an institutional investor, while Fresno was sold to a San Francisco based investor.

“This was our first transaction using the Ten-X auction platform, and both our client and our team were very impressed with the pricing of the portfolio, as well as the process with Ten-X,” said Herb Warmbrodt, founder and President of WHI.

Holiday Inn The Grand Montana -Billings is a full-service, 316-room hotel consisting of a seven-story tower, a two-story building and a Convention Center.  The hotel is conveniently located off I-90, just a few hours from Yellowstone National Park and the Little Big Horn Battlefield.

The Holiday Inn Cheyenne-I-80 is a full-service, 245-room hotel consisting of six floors.  The hotel is located only 1.5 miles from downtown Cheyenne, home to the world’s largest outdoor rodeo, the Cheyenne Frontier Days and the State Capitol of Wyoming.

The Holiday Inn Fresno-Airport is a 210-room hotel consisting of  two floors. The property is within five miles of downtown Fresno and is adjacent to Fresno Yosemite International Airport.


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Economy Hotels to Push Occupancy, Rate in 2016 Depending on Market

Hotel Business
Volume 25 No. 1 January 15, 2016
U.S. Hotel Industry Outlook 2016

Economy hotels will continue to benefit from relatively low new supply levels in 2016, and the sector is one of the few chain scales where meaningful occupancy increases are still predicted for the coming year. In some markets, there’s also the added potential for rate hikes as demand outpaces supply.

According to experts, the ongoing trend of aging midscale and upper-midscale hotels being down-branded into the economy segment, or economy hotels being renovated and up-branded to a higher tier, has kept the sector’s inventory in flux, but hasn’t changed overall room counts much. New supply in the form of construction is only beginning to warm up now in the segment.

“Much of the supply growth we’ve seen in the economy category has been this conversion and downscaling as properties age. Supply growth is about two-thirds of where we’d normally expect it to be in this part of the cycle,” said Mark Woodworth, president of PKF Hospitality Research, a CBRE Company. “One of the consequences of this slow overall return to supply is it’s made more economic sense than what’s typically the case for owners to be investing in these lower-level properties to maintain brand standards, freshen them up and so forth, so we haven’t seen that trade-down effect. That’s one of the factors that explains a lot of the lack of change, specifically expansion, in the economy category.”

This and other factors—such as lower gas prices stimulating leisure travel—are fueling fairly upbeat predictions for economy hotels in 2016, as the segment steadily continues its post-recession recovery. STR, Inc.’s forecast for the segment predicts year-end 2016 economy occupancy growth at 1.4%, ADR growth of 4.2% and a RevPAR increase of 5.6%. PKF is expecting somewhat slower occupancy growth of 0.6% to 58.6% overall, an ADR gain of 5.3% to $62.17 and RevPAR growth of 5.9% to $36.45.

“Economy has been the strongest chain scale for rate growth in 2015, at 5.2%, and we expect that to increase in 2016 to 5.3%, so it looks relatively steady,” said Jamie Lane, senior economist at PKF Hospitality Research/CBRE. “We’re not seeing a lot of new supply coming into the economy segment; it was flat the past two years, and is still going to be considerably below the U.S. average in 2016, at only 0.9%.”

But, according to owners who spoke with Hotel Business, the decision to raise rates needs to be made on a market-by-market basis, since economy travelers are highly price-conscious. Unlike the top end of the hotel market, there’s only so much an economy hotel can charge.

“From the budget economy standpoint, there’s certain markets where it’s tough to push ADR. Increasing rates above $50 or $60 really starts to have an impact,” said Zane Varvel, VP at Warmbrodt Hotel Investments. “That’s the consumer who’s price-conscious, so if you breach that $10 increment—whether it be $50, $60 or $70—it affects occupancy.”

In instances where the price point for an economy room simply can’t be pushed any higher, operators are shifting their focus to achieving incremental gains in occupancy, instead. In some cases, the results can well exceed segment or national averages.

“What we’re seeing in that regard is RevPAR growth is really being driven by occupancy improvements, and some markets have increased occupancy 2% to 5%, while others have gone above 10% in occupancy growth,” Varvel said. “With hotels, it’s a localized business and, depending on the market, it’s reflective of that.”

Varvel noted that a healthy demand outlook has enabled the RevPAR gains, with many economy properties seeing reinvigorated interest among leisure, business and group segments. This wide-ranging base of demand generators makes for a marketer’s dream, provided the local economy within the hotel’s market can withstand potential disruptions.

“In the oil markets, the demand has fallen pretty significantly but, other than that, this recovery has been kind of steady,” said Varvel. “Leisure has increased with the drop in the price of gasoline. The demand is there and it’s wide ranged, from group business coming back, to leisure travel continuing to improve. Demand has pretty much improved 5% to 6% on a macro level. We have a healthy economy and travel is becoming more of a leisure activity, so relative to other areas of real estate, I see that hotels are a less risky asset class. Barring some unforeseen disaster or socioeconomic event, I think the next two years are going to be pretty good.”


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Warmbrodt Hotel Investments Announces the Sale of Super 8 Lincoln Cornhusker Highway

Warmbrodt Hotel Investments (WHI) announced today they closed the sale of Super 8 Lincoln Cornhusker HIghway in Nebraska. WHI was the exclusive adviser on behalf of the seller. The property was sold to an institutional investor at an undisclosed price.  The purchaser plans renovations to the guest rooms and public spaces.

“A high occupancy property in a stable market like Lincoln offers the buyer a good investment, while the seller is able to recycle capital into newer product.,” commented Herb Warmbrodt, President of WHI.

The Super 8 Lincoln Cornhusker Highway is a 133-room, interior-corridor, three-story
hotel.  Features include a fitness room, business center, a meeting room, in-room
refrigerators and microwaves, guest laundry facility, free wireless internet and free
continental breakfast.  The property has a good location in Lincoln along Cornhusker Highway/Highway 6 and North 27th Street.  It is just minutes from the Nebraska State Capitol, the Lincoln Children’s Museum and the Lincoln Children’s Zoo.  Also nearby are Memorial Stadium, home of The Nebraska Cornhuskers, The University of Nebraska, and bars and restaurants in The Historic Haymarket.


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Market Focus: Everything’s Up to Date in Kansas City, MO

herb_warmbrodt

Herb Warmbrodt

I had the good fortune to attend the Integra Realty Resources 14th Annual Real Estate Trends earlier this month here in Kansas City, MO. This is an excellent opportunity to meet with leaders in the Greater Kansas City real estate market to learn what is happening in the sectors of office, retail, multi-family housing, industrial and healthcare.

The takeaway was very positive, with occupancies and rates increasing in all of these segments, in substantially all of the “micro” areas or submarkets that comprise the Greater Kansas City MSA. Virtually all of the segments are showing construction projects throughout the MSA and very good absorption rates of the new product.

Much of the discussion centered on the rejuvenation of the Greater Downtown—an area that includes Crown Center, the Crossroads Art District, the Downtown Loop and the Rivermarket. This area will soon be linked together by the new 2.2-mile streetcar line that is expected to begin operation in late March of 2016 at a cost exceeding $100 million.

The Kansas City Star has reported there are 79 downtown projects totaling more than $1.7 billion that have either been announced, are in progress or have been completed since 2012, including more than $545 million in preservation projects either in progress or in the works. These projects include approximately 3,500 apartment/condo units, new and upgraded office spaces, a proposed 800-room Hyatt Convention Hotel, numerous new build and retrofit hotels, as well as retail.

Other major projects in the market include the new $4.4 billion Cerner Corporation Campus in South Kansas City, MO and plans for either a new $1 billion Kansas City International Airport terminal or the renovation/expansion of the existing Terminal A building estimated to cost $350 million.  Read More . . .


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Comfort Inn New Castle

Warmbrodt Hotel Investments has been retained as the Exclusive Agent to extend to qualified principals, the opportunity to acquire the Comfort Inn New Castle in Pennsylvania.

View the Executive Summary for more information.

  • Consistent performance over several years, with over $1.4M in Revenue for the past 4 years
  • Significant NOI of $407,317, or $308,919 with management and replacement reserve, for the past 12 months through December 2015
  • Occupancy is averaging over 80% the past 4 years
  • Desirable Choice Hotels brand
  • Annual contract with rail road drives strong performance

 


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HOTEL INVESTMENT OPPORTUNITIES Billings, Montana / Cheyenne, Wyoming / Fresno, California

HOLIDAY INN GRAND MONTANA
Billings, Montana

TOUR DATES:  October 12-13, 2015
AUCTION DATES: November 2-4, 2015
LEARN MORE

INVESTMENT HIGHLIGHTS

  • Property offered for sale through Auction.com November 2-4, 2015
  • Greater Billings and the Competitive Set have consistent Occupancy of 60% and 62%, respectively
  • Property is on 13.66 acres
  • Property has RevPar of $47.85, and Market RevPar of $56.63. It penetrates the competitive set at 83.3%
  • Excellent location within Billings market; proximate to numerous corporate demand generators including ConocoPhilips, Exxon/Mobil, First Interstate Bank, Kampgrounds of America, Stillwater Mining Company, US Bank, MDM Resources, Billings Clinic, Cenex and St. Vincents Hospital
  • Property has strong NOI in excess of $1,000,000 with rate and Occupancy upside and increased efficiency potential upon renovation.

 

HOLIDAY INN CHEYENNE-I-80
Cheyenne, Wyoming

TOUR DATES:  October 14-15, 2015
AUCTION DATES: November 2-4, 2015
LEARN MORE

INVESTMENT HIGHLIGHTS

  • Property offered for sale through Auction.com November 2-4, 2015
    Cheyenne has experienced strong growth in ADR and RevPar since 2013. ADR has risen 11.4% and RevPar has grown 13.52% to $67.43
  • Property RevPar growth has risen 10% since 2013. It now penetrates the competitive set at 96.3
  • The property location within the Cheyenne market is very good.
  • Demand generators nearby include the State Capitol, F.E. Warren Air Force Base, Laramie County Community College, the Old West Museum and the University of Wyoming
  • NOI at the property is strong at $1,939,768

 

HOLIDAY INN FRESNO-AIRPORT
Fresno, California

TOUR DATES:  October 19-20, 2015
AUCTION DATES: November 2-4, 2015
LEARN MORE

INVESTMENT HIGHLIGHTS

  • Property offered for sale through Auction.com November 2-4, 2015
  • Over $3,750,000 in Room Revenue
  • Site is across the street from the main terminal of Fresno Airport
  • Property is on 6.6 acre
  • Property has strong NOI of $492,000 with rate upside and increased efficiency potential upon renovation

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Proud Sponsor of THE LODGING CONFERENCE 2015

October 6-9, 2015
Arizona Biltmore Resort & Spa

PLEASE JOIN US . . .

‘Let’s Close A Deal’ meetings
Wednesday, October 7, 2015 | 2:30pm – 5:30pm

Session T-7 Think like a Buyer: How to Prepare Your Hotel for Sale
Thursday, October 8, 2015 | 11:00am – 12:15pm
Herb Warmbrodt, Panelist

OR we welcome an opportunity to meet with you individually to discuss current opportunities we have in the market including the Hilton Garden Inn located in Kansas City, Kansas. Please call or email us to schedule a meeting.

Herb Warmbrodt
(913) 381-3737, herb@whikc.com

Zane Varvel
(312) 262-5930, zane@whikc.com

We look forward to seeing our friends and colleagues in attendance.


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