Industry experts and property managers believe gamblers, tourists, medical traffic and convention attendees will shore up downtown Cleveland hotels, driving collective occupancy above 60 percent -- and possibly higher.
Operators of hotels in downtown Cleveland hope that large projects, including a casino and a new convention center, will attract more traffic and fill more rooms in a weak market.CLEVELAND, Ohio -- High-rolling projects from a casino to a new convention center could push hotel occupancy in downtown Cleveland to levels not seen in more than a decade.
That's what hotel managers are hoping, at least, with construction under way on a $350 million casino on Public Square and a $465 million convention center and medical mart in the heart of the city.
Hotels across the country are recovering from a brutal slump. Conditions in Cleveland, hurt by corporate cost-cutting, an archaic convention center and the recent decline of local sports teams, have been weak for years.
Now industry experts and property managers believe gamblers, tourists, medical traffic and convention attendees will shore up downtown hotels, driving occupancy above 60 percent -- and possibly to the mid-60s or higher.
And hotel developers are canvassing downtown Cleveland with renewed vigor, considering projects in historic buildings from Euclid Avenue to the Warehouse District.
"I think everybody's holding their breath and running as fast as they can to the light at the end of the tunnel," said Leonard Clifton, general manager of the DoubleTree hotel at East 12th Street and Lakeside Avenue.
Last year, downtown hotels posted a collective occupancy rate of 57.9 percent and an average daily rate of $108.21, according to research company STR. At those levels, full-service hotels are struggling, searching for ways to cut costs without curbing customer service.
The Arcade, a historic building that includes a 293-room Hyatt hotel on Superior Avenue, is laboring through a foreclosure case that started in 2009. In January, a mortgage-holder filed a foreclosure complaint against the owners of the Hilton Garden Inn on Carnegie Avenue.
"We're at the end of what has been the worst period in the hotel business in the United States in recorded history," said Mark Eble, regional vice president for PKF Consulting in Chicago. "There's been nothing remotely like it, and Cleveland, like other Midwestern cities, has taken it hard. These are survival conditions for many hotels."
But consultants say downtown Cleveland could become more stable, thanks to the first phase of a casino set to open next year and a convention center and medical mart -- a medical-device showplace -- to debut in fall 2013.
Developers of those projects aren't sharing specific figures on their hotel needs. It's clear, though, that the facilities could fill hundreds of hotel rooms nightly, based on estimates from the local visitors' bureau and early talks between the developers and local hotels.
Some hotel managers hope occupancy might reach levels last seen in the mid-1990s, before the decline of the convention center and several new hotel projects drove up vacancies.
"Moving into the 60-percent range is a definite reasonable target," said David Sangree, president of the Hotel & Leisure Advisors consulting firm in Lakewood. "It's just a question of will it be the low 60-percent range or the high 60-percent range?"
View full sizeWork continues in early April to convert the the former Higbee department store in downtown Cleveland into a casino.Rock Gaming and Caesars Entertainment Corp. predict that their first-phase casino will attract 5 million visitors annually. Early on, much of that is likely to be local and regional traffic, but that doesn't mean patrons won't spend a night downtown, said Marcus Glover, general manager for the Cleveland Horseshoe Casino.
Within 300 miles of Cleveland, Caesars has a ready-made audience of roughly 700,000 loyalty-card holders, who earn credits for hotel stays and other perks for playing at the gaming company's properties.
Downtown hotel managers said they've heard the casino could require 300 to 500 rooms on weekdays and between 700 and 1,000 on weekends. If those estimates are half right -- 150 rooms on most weeknights and 350 on most weekend nights -- the casino could push overall occupancy up by a few percentage points.
"I don't know what it's going to mean for us," said Vern Fuller, president of Marathon Associates, a management company that runs the Radisson Hotel in downtown's Gateway district. "It will be better than it is now, because it can't be worse."
Rock Ohio Caesars has secured an option to buy the Ritz-Carlton Cleveland hotel, but the casino still will need additional rooms, at a range of prices.
Glover plans to talk to hotels this summer about options ranging from booking blocks at several downtown hotels to negotiating special rates for casino patrons. Caesars uses a similar model at properties including Horseshoe Hammond, a riverboat casino in Indiana.
"We actually feel so strongly that this is a renaissance of the tourism industry that our annual meeting on May 18th is going to focus on that," said Tamera Brown, vice president of marketing for Positively Cleveland, the region's convention and visitors' bureau.
Positively Cleveland expects new traffic from an aquarium under construction on the west bank of the Flats, a new African elephant crossing exhibit at the Cleveland Metroparks Zoo, the expansion of the Cleveland Museum of Art and other projects.
And the visitors bureau and hotels expect a big bang from the new convention center, which would put Cleveland back on the circuit for large meetings after years of stagnation as a fly-over city.
View full sizeSage Hospitality and Optima Ventures hope to buy and redevelop the Crowne Plaza hotel in downtown Cleveland. The hotel sits across East Sixth Street from Public Auditorium and the construction site for a new convention center and medical mart -- a showplace for medical devices.The Crowne Plaza, on St. Clair Avenue, has been limping along under the ownership of defunct financial-services giant Lehman Brothers Holdings Inc. Sage Hospitality and Optima Ventures hope to buy the hotel -- downtown's second-largest -- and spend more than $40 million renovating it to bring in a different, high-end brand.
The companies are exploring ways to connect the hotel to the convention center and medical mart through a walkway to Public Auditorium, a city-owned building across East Sixth Street.
Merchandise Mart Properties Inc., the Chicago-based company building the convention center and medical mart, says it has booked 33 conventions, conferences or trade shows. Construction started in January on a 230,000-square-foot exhibit hall, 92,000 square feet of ballroom and meeting space and the 235,000-square-foot medical mart.
"If we host one significant conference, convention or trade show each week, that's approximately 50 a year," spokesman Dave Johnson said. "The average attendance in the industry is about 2,000 people. If an average convention attendee or medical mart visitor stays in town two to three days, that's significant from the standpoint of several areas: hotels, meals, entertainment, transportation and ancillary spending. ... That's where you start to compute that economic impact."
Positively Cleveland has created some conservative projections for the convention center. From 2005 to 2009, conventions and meetings filled an average of 153,000 rooms each year. Only 10 to 15 percent of those were tied to the convention center. The visitors' bureau predicted that a new facility would increase traffic by 25 percent in its first year and by 5 percent annually during the subsequent five years.
That shakes out to 28,687 hotel rooms during the first year and 36,611 rooms by the sixth year -- enough to add several percentage points to occupancy rates. Those figures are similar to minimum benchmarks outlined in a contract between MMPI and Cuyahoga County, which partnered to build the publicly financed, privately run facility.
None of the projections account for the medical mart, where MMPI says it has signed letters of intent -- non-binding agreements -- with 63 tenants.
View full sizeAn iron worker inspects and scales back rust on steel girders in downtown Cleveland, as part of ongoing construction for a new convention center and medical mart set to open in late 2013.Brian Moloney, general manager of the Wyndham Cleveland at PlayhouseSquare, has not seen any firm numbers from MMPI.
"They're pretty ambiguous, frankly," he said. "I worked in Chicago where they had the Merchandise Mart, and that was a great generator of room nights. But that's Chicago."
The Wyndham, which finished a $4 million renovation in 2009, is one of several hotels to spruce up in anticipation of better times. The Marriott at Key Center plans to upgrade its restaurant in 2013 and is speculating about potential above-ground connections to the medical mart project.
Concord Hospitality Enterprises, a North Carolina company with Northeast Ohio roots, recently bought a stake in the Hampton Inn at East Ninth Street and Superior from developer John Ferchill and is planning significant upgrades.
The Renaissance Cleveland, downtown's largest hotel, plans to revamp its guest rooms and corridors starting in the first quarter of 2012. And the Holiday Inn Express on Euclid Avenue just finished installing hardwood floors in all the guest rooms, as part of a slow but steady renovation project.
Meanwhile, several hotel developers are scouting the market, attempting to buy downtown buildings and line up financing to turn them into hotels. With money scarce, the only completely new building is a 150-room Aloft scheduled to open in 2013 at the Flats East Bank, a $275 million project that includes offices for accounting firm Ernst & Young.
Commercial real estate experts say a resurgent downtown might support one or two smaller hotel projects, including a Kimpton Hotel on East Ninth Street. But it's unlikely all the proposals will get financed, especially with limited growth in corporate demand for hotel rooms and Eaton Corp. planning a move to the suburbs.
"Five to 10 years ago, a lot of the hotels were built with the express promise of a convention center that never materialized," said Doug Price, chief executive at the K&D Group, which owns the Embassy Suites hotel on East 12th Street.
"We already have built a lot of the rooms for a convention center. I just look at what's going on as something that was promised years ago that is finally going to happen. ... It finally brings Cleveland to more of a normal operating environment."