U.S. Hotel Appraisals Hotel Market Snapshot: St. Louis
While new hotel builds and transactions seem scant in St. Louis, existing hotels have seen an overall performance increase over the past year. How far is the city’s hotel industry along on its road to recovery?
By Dan McCoy
In 2010, the St. Louis area hotel market, along with the regional economy, stabilized and began to show signs of recovery; this trend of measured growth has continued through the first half of 2011. According to a June 2011 report by IHS Global Insight, the St. Louis area registered a $128.7-billion gross metropolitan product 1 for 2010. This represents a 2.6% increase over the previous year and ranks St. Louis 20th among U.S. metropolitan areas. The same report projects the St. Louis area’s unemployment level to gradually decline to its pre-recession low by the end of 2014.
Hotel Performance
This turnaround in the local economy has been a balm to area hotels, which had been hit hard by the recession. Many area employers have lifted travel restrictions, and some companies have resumed hiring and training activities—both important sources of hotel demand. According to market participants, hotel occupancy levels generally began to recover in the second quarter of 2010, while average rates held relatively steady for the year on an annualized basis. As of the summer of 2011, occupancy has continued to improve at a healthy pace, allowing hoteliers to reassert some pricing power and command modestly higher rates.
Like other major metropolitan areas, St. Louis comprises several submarkets and hotel tiers, not to mention hundreds of hotel properties. While the hotel performance conditions referenced above represent overall trends for the entire market, the location and condition of any individual hotel property in the city influences its position on the track to recovery. Hence, recently constructed or renovated hotels in areas with high levels of business activity, such as Clayton and Chesterfield, are leading the recovery, while older hotels in need of renovation and hotels in less active or oversupplied submarkets may still be experiencing performance declines.
New Hotel Supply and Transactions
Overall, indications are that local hotel performance is winding its way upward from the low points of the recent recession; however, for the most part, occupancy and average rate levels remain below the peaks seen from 2005 to 2007. The performance gain is promising, but along with the state of the still-constricted credit markets, the slow rate of growth has not done much to encourage new hotel development in St. Louis. Only one new hotel, the 51-room boutique Hotel Ignacio, has opened in 2011, and no other properties are expected to open this year. On a positive note, the lull in development activity—or more specifically, the lack of new competition—should give existing hotels a chance to increase occupancy levels and reestablish rate integrity.
The same factors that have restricted construction have slowed the pace of hotel transactions in the area as well. The limited number of transactions that have taken place since the beginning of 2010 include the sale of the Hampton Inn Downtown and the Hampton Inn & Suites Forest Park, both to affiliates of Apple REIT Companies; the sale of the Embassy Suites St. Louis-Airport to Fairwood Capital; and the sale of the Crowne Plaza in Clayton to a local investor. A number of area hotels, including two high-profile properties in Downtown St. Louis, have been subject to foreclosure, while many other properties are now in default or “underwater” on their mortgages.
Conclusion
While conditions for new builds and buys of hotels in St. Louis seem dour at the moment, there are signs of promise for the region’s hotel industry. The tone of the 2011 Midwest Lodging Investment Summit, held in Chicago in July of 2011, was overwhelmingly optimistic. Panelists and presenters reported that, in addition to strengthening property level performance, the availability of financing is improving and hotel values have begun to rebound. Additionally, several summit participants reported that debt and equity investors have begun to venture beyond the major gateway markets in search of higher returns in secondary and tertiary cities. These trends in the hotel and capital markets should help rejuvenate the St. Louis hotel landscape, along with other markets across the Midwest. As the U.S. economy continues to stabilize and travel levels improve, owners and investors are encouraged to learn more about how the value or feasibility of their next project may fare.
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1 The gross metropolitan product is defined as the final value of all goods and services produced within a metropolitan area over the period of one year.
While new hotel builds and transactions seem scant in St. Louis, existing hotels have seen an overall performance increase over the past year. How far is the city’s hotel industry along on its road to recovery?
By Dan McCoy
In 2010, the St. Louis area hotel market, along with the regional economy, stabilized and began to show signs of recovery; this trend of measured growth has continued through the first half of 2011. According to a June 2011 report by IHS Global Insight, the St. Louis area registered a $128.7-billion gross metropolitan product 1 for 2010. This represents a 2.6% increase over the previous year and ranks St. Louis 20th among U.S. metropolitan areas. The same report projects the St. Louis area’s unemployment level to gradually decline to its pre-recession low by the end of 2014.
Hotel Performance
This turnaround in the local economy has been a balm to area hotels, which had been hit hard by the recession. Many area employers have lifted travel restrictions, and some companies have resumed hiring and training activities—both important sources of hotel demand. According to market participants, hotel occupancy levels generally began to recover in the second quarter of 2010, while average rates held relatively steady for the year on an annualized basis. As of the summer of 2011, occupancy has continued to improve at a healthy pace, allowing hoteliers to reassert some pricing power and command modestly higher rates.
Like other major metropolitan areas, St. Louis comprises several submarkets and hotel tiers, not to mention hundreds of hotel properties. While the hotel performance conditions referenced above represent overall trends for the entire market, the location and condition of any individual hotel property in the city influences its position on the track to recovery. Hence, recently constructed or renovated hotels in areas with high levels of business activity, such as Clayton and Chesterfield, are leading the recovery, while older hotels in need of renovation and hotels in less active or oversupplied submarkets may still be experiencing performance declines.
New Hotel Supply and Transactions
Overall, indications are that local hotel performance is winding its way upward from the low points of the recent recession; however, for the most part, occupancy and average rate levels remain below the peaks seen from 2005 to 2007. The performance gain is promising, but along with the state of the still-constricted credit markets, the slow rate of growth has not done much to encourage new hotel development in St. Louis. Only one new hotel, the 51-room boutique Hotel Ignacio, has opened in 2011, and no other properties are expected to open this year. On a positive note, the lull in development activity—or more specifically, the lack of new competition—should give existing hotels a chance to increase occupancy levels and reestablish rate integrity.
The same factors that have restricted construction have slowed the pace of hotel transactions in the area as well. The limited number of transactions that have taken place since the beginning of 2010 include the sale of the Hampton Inn Downtown and the Hampton Inn & Suites Forest Park, both to affiliates of Apple REIT Companies; the sale of the Embassy Suites St. Louis-Airport to Fairwood Capital; and the sale of the Crowne Plaza in Clayton to a local investor. A number of area hotels, including two high-profile properties in Downtown St. Louis, have been subject to foreclosure, while many other properties are now in default or “underwater” on their mortgages.
Conclusion
While conditions for new builds and buys of hotels in St. Louis seem dour at the moment, there are signs of promise for the region’s hotel industry. The tone of the 2011 Midwest Lodging Investment Summit, held in Chicago in July of 2011, was overwhelmingly optimistic. Panelists and presenters reported that, in addition to strengthening property level performance, the availability of financing is improving and hotel values have begun to rebound. Additionally, several summit participants reported that debt and equity investors have begun to venture beyond the major gateway markets in search of higher returns in secondary and tertiary cities. These trends in the hotel and capital markets should help rejuvenate the St. Louis hotel landscape, along with other markets across the Midwest. As the U.S. economy continues to stabilize and travel levels improve, owners and investors are encouraged to learn more about how the value or feasibility of their next project may fare.
______________________
1 The gross metropolitan product is defined as the final value of all goods and services produced within a metropolitan area over the period of one year.
About the Author:
Dan McCoy is Managing Director of U.S. Hotel Appraisals’ consulting and valuation office in St. Louis. Dan has conducted hundreds of appraisals and consulting assignments for hotels throughout the U.S., including limited- and select-service properties across the Midwest. Contact Dan at (970) 215-0620 or dmccoy@ushotelappraisals.com.