Hotel Scene Is Thriving
With Tourism Up Thanks To Mega Events Like The Final Four And Super Bowl, Downtown Phoenix Hotel Development Is Back On Track After The Sale Of The Sheraton
(LEFT) The Luhrs Tower — located in Downtown Phoenix, Arizona. Image courtesy Camerafiend and used under the terms of a Creative Commons license. (RIGHT) Rendering of the new Hampton Inn & Suite. The hotel is the latest example of the city of Phoenix's revitalization plan. Image courtesy of Mortenson.
By Karen Weil
Modern Times Magazine
March 13, 2017 — Just four years ago, when the U.S. economy was emerging from the Great Recession, some observers in the Phoenix hospitality industry worried that there might be too many hotels in the metro area and, specifically, in downtown Phoenix.
But since that time facilities have nearly tripled and rooms have boomed.
David Drennon, executive vice president with Arizona Lodging & Tourism Association, said there’s definitely a healthy demand for more hotels.
Downtown is home to a slew of big-name hotels, including the historic Hyatt and Renaissance, along with relative newcomers Sheraton, Palomar, Westin, Hilton Garden Inn as well as the historic Hotel San Carlos.
“We’re now in the third consecutive year of ‘mega-events,’” including the Super Bowl and Final Four, Drennon said. “You cannot get a room downtown – everything’s oversold.”
Today’s situation is a contrast from 20 years ago: Drennon remembers arriving in Phoenix in the late 1990s, and some were reluctant to show him the downtown area. Dating back to the early 21st century, the city of Phoenix has worked to help revitalize downtown.
Earlier actions — in 1979, a redevelopment area was established; in 2004, the city OK’d a Downtown Strategic Plan — have resulted in about $5 billion worth of investment, according to the city.
MORE NEW DOWNTOWN HOTELS COMING
Skyline view of Phoenix — looking northeast from a helicopter. Image courtesy DPPed and used under the terms of a Creative Commons license.
A new addition recently broke ground: the 11-story, 210-key Hampton Inn & Suites in downtown Phoenix being built and developed by Mortenson Construction.
When completed next summer, the hotel — at the intersection of North First Street and East Polk Street, just south of the Arizona State University campus — will be the first Hampton downtown, and close to light-rail access.
The city of Phoenix, which indirectly played a role in the project’s coming to fruition, is pleased with what’s happening.
“It’s great in multiple ways,” Eric Johnson, city community and economic development director. “Mortenson is making a capital investment there and will pay taxes.”
Johnson added that translates into jobs and more places for convention-goers to stay.
In the long run, it’s all about making downtown Phoenix a 24/7, “live-work-play” area, Johnson said.
As part of a 2006 agreement, the city worked with Central Park East LLC. The Central Park East project, as part of its first phase, included an office tower, the Freeport McMoRan Center, with the Westin hotel occupies the building’s second half.
The agreement called for a property excise tax (rather than the standard property tax rate), transferring ownership to the city government, which then leases it to the developer.
Developers had time to build the project’s second phase, and this is where Mortenson came into play, Johnson said, added that as part of the overall negotiation, the city amended the agreement to remove the hotel project from it.
“We actually didn’t incentivize the hotel, but Mortenson has the opportunity to build a future tower on the land,” Johnson said. “We don’t necessarily lose money, because the developer is paying the excise tax.”
SHERATON FINALLY GOES PRIVATE
Similar projects have not always paid off for the city: In February 2016, the City Council accepted a $300 million offer to sell the Sheraton Grand Phoenix hotel, as a way to stop the money drain on it.
The city originally OK’d financing the 1,000-room Sheraton, near the new convention center, as part of its downtown revitalization plan.
Timing was inconvenient, however, as the Sheraton opened up in 2008, when the Great Recession began. According to a 2016 Arizona Republic article, city staff members said the hotel represented an estimated $45- to $50-million loss for taxpayers.
The industry now is having a great year economically, Drennon said. He added that as of December 2016, revenue per available room is up 5.7 percent, lodging and occupancy are up 2.4 percent, and the average daily room rate has risen 3.2 percent. 2015 also saw growth across all boards, Drennon said.
He credits Arizona State University’s downtown campus — attracting a younger, more diverse crowd — as one reason for the renaissance.
“You have this eclectic mix of art, sporting events – and you have these hotels, and each of them with their own unique restaurants,” Drennon explained. “Downtown has come into its own in the last decade, basically.”
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