Rooms go up as demand lags behind
Editor's note: The following story was printed in the October 2012 edition of the Denton Business Chronicle.
Many factors have been working against Denton hoteliers during the past couple of years. The biggest factor, though, has been an increased supply of rooms that demand hasn’t kept up.
The hoteliers agree that evening out the market will take time. But their concern is that a proposed convention center and hotel will add more than 300 rooms to the market before it has time to bounce back.
Tom Jariwala, regional manager of Brinker Lodging, which owns the Hilton Garden Inn in Denton, calls the market “fragile.”
The Hilton hotel, located on Colorado Boulevard, was opened in 2010 around the same time as the Courtyard by Marriot, which is also on Colorado Boulevard, and the Best Western Premier Crown Chase Inn & Suites, which is on an adjacent road.
A tremendous amount of hotel rooms hit the market, said Charles Helm, with Helm Hotels Group, which owns Best Western Premier in Denton. It caused the market to suffer and now hoteliers are trying to catch up, he said.
Helm’s hotel, located on Brinker Road, was the first Best Western Premier in North America, he said.
Helm has other hotels in different markets, including two in Greenville.
“I’ve found what works in one city may not work in another,” he said. “Denton has great potential for growing.”
Helm describes Denton as a city with an oversupply of rooms and not enough demand.
Many hoteliers have struggled to make their mortgage payments, Helm said.
A big part of the reason the hotels wanted to open in Denton was because of the growth of the University of North Texas and Texas Woman’s University.
Jariwala said the hoteliers didn’t realize other companies were looking to build hotels in Denton and it was too late by the time they found out
“We waited as much as we could,” he said.
The management company started building the hotel around 2007.
Kim Phillips, director of the Denton Convention and Visitors Bureau, calls it an “overbuild” situation.
The recession happened in 2008 but the travel and tourism industry is a lagging industry, which means it takes longer to reflect national trends, she said. On top of that, there was a flood of rooms added to the Denton market.
“They’re all good hotels and add quality options for guests,” Phillips said. “We just had too many of them all at one time.”
Denton wasn’t the only city that experienced a huge influx of limited service hotels, she said, giving the example of hotels that popped up near the Texas Motor Speedway, which also had an impact on local business.
Hotels also sprung up in Lewisville and down the 121 corridor near the Dallas-Fort Worth International Airport.
This was happening everywhere around Denton with very little variation in the type of hotel, she said.
“It’s really hard for the business to catch up with what’s happening in the market,” Phillips said.
The good news is, despite high gas prices, economic development is revving up again in Denton, she said. All of these factors — from gas prices to retail development — go hand in hand, she said.
And the Denton Convention and Visitors Bureau has tailored its marketing to the increased gas prices and tried to gain business from within the area, Phillips said.
If people attend a festival from far enough away they will likely spend the night, she said.
“Business is really turning,” she said. “We’re seeing a positive turn in the economy.”
She said business travel is also returning to normal levels.
Another key point is that Denton hasn’t added any more hotel rooms, so the market has been stable, Phillips said.
There are about 26 hotels in the Denton market and about 2,000 rooms.
Of those rooms about 1,201 had visitors every night for the second quarter of the year.
Phillips calls that pretty impressive.
Hotel occupancy rate has increased locally after taking a dip in 2009.
The hotel occupancy rate dropped 13.8 percent from 2009 to 2010, according to information from the Denton Convention and Visitors Bureau.
In 2011, the occupancy rate was 52.8 percent, up 9 percent from 2010 when it was 48.4 percent.
Year to date for 2012, the occupancy rate is 59.3 percent.
The hotel occupancy tax has also increased, which Jariwala attributes to the increased number of hotels.
“The occupancy has gone up,” Jariwala said. “The biggest challenge in Denton is ADR (average daily rate).”
For the Hilton Garden Inn, the average daily rate is almost $30 to $35 lower than the brand’s nationwide rate, Jariwala said.
“It’s still a challenge because so many new hotels went in,” he said. He and the other hoteliers predict it will take a couple years to bring the Denton market back to normal.
The average daily rate for the second quarter of the year is $68.27, which is down from previous years. The revenue per available room is $45, which is up for the second quarter over previous years.
The room rate is driven by occupancy rates. If there is a low occupancy rate then the room rate is low because the hotels are competing for the little bit of business that exists in Denton.
Convention center concerns
While the market is bouncing back, there is some concern about a proposed convention center with an attached hotel.
“The market has improved some this year,” Helm said. “What our concern with the new hotel was we’re catching up but another 300 rooms is going to put us right back where we were.”
The proposed convention center is a partnership between the city, UNT and Missouri-based O’Reilly Hospitality Management LLC.
The convention center would be built on the former site of the Radisson Hotel, which is owned by UNT.
The management company approached the city and the university at the beginning of the year, after the project had been dormant since 2009.
John Q. Hammons Hotels & Resorts was originally planning to develop the project.
It’s been the city’s goal to build a convention center for at least 10 years.
Linda Ratliff, director of economic development for the city, said the proposed convention center project is moving forward but the agreement has not been finalized with the developers.
The hoteliers wrote a letter to Ratliff after they heard the project was being revived, expressing their concerns about the additional rooms.
Since then, they’ve requested the city to update its 2009 hotel market study.
And the existing hoteliers have asked the city to update its 2009 hotel market study because of their concern over the additional rooms.
In July, the hoteliers suggested a moratorium on adding rooms until the market could recover.
Jariwala said that, like the city’s feasibility study, the hotel’s feasibility study showed the average daily rate would be higher in this market.
He said it’s hard to know, especially with the recession.
Jarawala views it this way: Hilton Garden Inn has 100 rooms so adding about 300 more rooms to Denton is like adding three more hotels.
Ratliff said the city is not planning to update the feasibility study.
The hoteliers concern is that the feasibility study is out of date but if a new feasibility study is conducted now, it will be out of date again before the convention center and hotel are actually built, Ratliff said.
The city has already invested the money into the study, she said.
“We feel like we got our answer out of that,” Ratliff said.
Helm said the hoteliers don’t want to stop progress but they also have their concerns, which is protecting their investments.
The convention center hotel is going to be in the same boat as the other hotels when there isn’t a convention going on, he said.
Helm doesn’t have a problem with the city putting money into the convention center and hotel project but he hopes it will allow business to catch up, he said.
“The city has promised they are going to help the hotels in Denton,” he said.
City officials expect the conference center to bring additional business into Denton, which they say will be good for the existing hoteliers.
The city looked at putting a convention center up without a hotel but it doesn’t do as well as a convention center with a hotel, she said.
“You can’t sell it to out-of-town groups without a hotel,” Phillips said.
Phillips said there are thousands of associations and a lot of them would be a good fit to have their conventions in Denton but the city hasn’t been able to bid on them because there isn’t a large enough area for them to meet.
One of the criteria for many of those bids is a space with a certain number of hotel rooms at the same place as the meeting center, she said.
It costs a lot of money to transport people from the convention center to hotels across town, she said.
But not everyone who comes in for these conventions will stay at the convention hotel, Phillips said, which means the remaining business will pour over to other hotels.
In that case, everyone wins including the customer, Phillips said.
Helm doesn’t doubt that a convention center does better with a hotel attached to it.
But the convention center business had become competitive, he said.
There is a convention center in Frisco, which has done well, and there is one in Allen and Plano.
He said the city has to be careful because if there is an overabundance of convention centers in the area, it could be difficult to attain the business the city is expecting to get.
When asked about the future of the hotel market in Denton, Jariwala said, “Things change every day. Your guess is as good as mine.”
The Denton market still needs a lot of improvement, he said.
RACHEL MEHLHAFF can be reached at 940-566-6889. Her e-mail address is firstname.lastname@example.org.