Wichita hoteliers are struggling to recover after hitting bottom in 2010 because the market keeps adding hotel rooms.
The good news is that demand for hotel space in the market is rising, although slowly, according to STR Global, an industry research firm. The first four months of 2012 were up 2.9 percent over the same period of 2011 and 7.1 percent over the same period of 2010 – about 40,000 more hotel room nights.
Even better for hoteliers, they have been able to raise rates because there has been some tight occupancy on some days. The key metric in the hotel business, revenue per room per night, rose in 2011 and again, so far, in 2012.
That accords with the slow national recovery in the industry.
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What makes Wichita different is that new hotels keep popping up in the market, expanding the number of rooms, reversing gains in occupancy rates, according to STR. Since 2008, the Wichita market has added a net 13 hotels with nearly 1,000 new hotel rooms, more than 10 percent more, despite a dramatic tightening of credit by lenders that is only now starting to ease.
When the recession started, many expected a massive wave of foreclosures as hoteliers were unable to refinance their construction loans and mortgages. It didn’t happen, said Jan Freitag, senior vice president of STR.
“It’s called ‘extend and pretend,’ ” he said. “The banks pretended that it was going to work out because they didn’t want to take back the property and try to sell it at fire sale prices.”
The tactic has largely worked because commercial real estate asset values have partially rebounded allowing the banks to begin working their way through their troubled hotel loans without devastating losses.
“You won’t see any major impact on the hotel industry,” he said. “There might be some independents who shut down, but the chance of that happening to a branded property is not very high.”
Several Wichita area hotels have gone into foreclosure or forced sales over the last three years. But, for the most part, hotels are getting by.
Johnnie Parmar opened the Hampton Inn in Derby in 2009 and is a partner in the Holiday Inn Express Hotel and Suites which opened last year on north Maize Road.
Neither hotel is losing money, he said, but neither is making him rich, at this point.
The new Holiday Inn has a good location, but it’s only seeing 50 percent occupancy. He needs 70 percent occupancy and the ability to charge $100 a night to make a good return on the new building and equipment.
But customers are getting lower rates, which is eating up hoteliers’ profits.
“It’s just paying the bills, with no return for the owners,” he said of the new hotel.
Hotels downtown are seeing a lot of new or upgraded rooms in the last three years with the assistance of local and state tax incentives.
These include the $11.5 million Fairfield Inn & Suites Wichita Downtown, which opened last year; and the $29 million renovation of the Drury Plaza Hotel Broadview, also completed last year.
Jim Korroch, owner of the Fairfield Inn, as well as 6-year-old Courtyard Wichita at Old Town, acknowledged that the downtown market is pretty saturated.
“It’s our own fault and, frankly, the upgrade of the Drury,” he said. “Even when it was the Broadview, it wasn’t really competitive, but with the reopening, we think that’s largely why we’ve seen a drop in occupancy.”
That oversaturation will likely only grow worse with the December opening of the 117-room Ambassador Hotel, a $22 million renovation of the 14-story Douglas Avenue Building at Douglas and Broadway.
Hotels aimed at boosting downtown redevelopment are often one of the few categories reliably getting funded, Freitag said.
“Otherwise, there is very, very little new supply,” he said. “Banks are very skittish. Owners have to put up a lot of equity.”
Boeing, Hawker concern
Saturation is more than a downtown phenomenon, say hoteliers. Over the last three years new hotels have risen all over town, with more planned.
That, combined with the looming loss of Boeing and the troubles at Hawker Beechcraft, worries many hoteliers.
Steve Miller, director of hotel operations for Lighthouse Properties of Salina, said he is generally pleased with the performance of the company’s Homewood Suites by Hilton at the Waterfront.
But, he said, he is concerned by the economic challenges.
“We are still worried about Boeing and Hawker and those big companies,” Miller said. “We’re concerned with the supply of rooms and that, as more keep coming, we will be overbuilt.”
Korroch, who also owns two east-side hotels, said he is seeing some gains from an unusual sources: guests connected with the boom in oil drilling in southern Kansas, and others visiting because of the planned closure of the Boeing plant.
“With Boeing that’s short-short term,” he said. “With the oil and gas development, that’s a little longer, but it’s still short term as other hotels start to get developed closer to the those areas. The other demand generators on the east side are stagnant.”