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Vacancies exist in downtown hotel market


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Credit markets are as cold as the other side of the pillow for hotel developers, and at least one city official believes that situation makes downtown Des Moines an inhospitable stop for business travelers.

Matt Anderson, the city’s economic development administrator, said downtown has suffered a net loss in hotel rooms at the same time it has experienced tremendous growth in commercial and residential development.

He sees business travelers driving to the suburbs at the end of a workday downtown.

“We’d so much rather have consultants who are always going to be here staying downtown,” Anderson said. “I think you can add hotel rooms downtown, without siphoning off businesses from other downtown hotels, instead of having business going to the suburbs and pulling that business out of downtown.”

The Suites of 800 Locust was the last hotel to locate downtown, arriving in the early 1990s and coinciding with the razing of a Holiday Inn at Gray’s Lake and the conversion of other hotel rooms to apartments.

“We have strong hotels downtown, but there are some flags that are clearly missing,” Anderson said. Those flags would fly above names such as Courtyard by Marriott, Hampton Inn and Holiday Inn Express, chains that provide no-frills accommodations for business travelers.

Anderson said that there is renewed interest in developing hotels downtown, with the owners of the Liberty Building hoping to obtain financing for extended-stay rooms in the middle floors of the building.

In addition, Sherman Associates Inc. has raised the possibility of a hotel at its Gray’s Landing development on the southern edge of downtown, and an out-of-state developer has made inquiries about building near Principal Park.

“It is interesting,” Anderson said. “It’s really a difficult time in the market to finance hotels, which is stalling some of the development that is kind of lurking out there.”

Jeff Hunter plans to start work in the fall on a $40 million renovation of the Hotel Fort Des Moines, which would become part of the Hilton hotel chain.

However, financing has been difficult to come by for that project, which would pair the historic hotel with a prized national name.

“It’s incredibly tight,” Hunter said. “We’re still working on putting together a deal.”

Lenders are asking investors to place 40 to 50 percent of their own money in such projects, whereas two years ago owner equity would have been about 20 percent, Hunter said.

He also noted that lenders tend to view hotels as a lower asset class than other types of commercial properties.

However, he said, local and regional banks that are familiar with the Hotel Fort Des Moines and its history as a downtown institution tend to be “more excited” about the project.

The renovation would add about 30 rooms to the hotel and would add the component of Hilton’s reputation as a conference center and more upscale stop for business travelers to a generic Des Moines hotel marquee.

Hunter said the Hotel Fort Des Moines will maintain its “historic fabric” during the renovation.

The prospects for hotel financing seem bleak at the moment, according to two national reports.

PKF Hospitality Research predicts that 2009 will be the weakest year on record in the lodging industry, with little hope of a recovery, a “robust” one at that, until 2011.

A recent report from Hotel Brokers International stated that tight credit markets resulted in a 55 percent drop in hotel transactions last year. The organization said the downward trend in hotel sales could hit bottom in 2010.

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