New Orleans Hotel Boom: How Big Can it Get?
Louis David, NOLABA Director of Business Development and Strategy, spoke with NOLA.com about how hotels have changed in New Orleans. The Troubadour is the latest hotel to figure in a long line cropping up in the city’s Central Business District and surrounding neighborhoods, where industry experts say an unprecedented boom in hotel development has been underway for about five years.
New Orleans hotel boom: How big can it get?
From his office on the 20th floor of a high-rise off Gravier Street, Louis David has been watching a new hotel called The Troubadour take shape in an abandoned building once known as the Rault Center. He has seen the building morph from an empty relic a year and a half ago into a 183-room boutique hotel set to open later this fall.
“The hotel product is really evolving in New Orleans,” said David, director of business development and strategy for the New Orleans Business Alliance. “We have so much more variety these days, and that’s what I think a lot of travelers are looking for. They want old charm, but they also want modern amenities.”
The Troubadour is the latest hotel to figure in a long line cropping up in the city’s Central Business District and surrounding neighborhoods, where industry experts say an unprecedented boom in hotel development has been underway for about five years. But it’s a boom experts say may not be enough to shelter all the tourists heading to New Orleans, even with projects still in the planning pipeline.
Since January 2010, New Orleans has added 23 hotels entailing nearly 4,000 new rooms, according to August data from Smith Travel Research (STR). The data covers New Orleans’ metropolitan market, including the North Shore and Jefferson Parish.
The New Orleans market now boasts 283 hotels, with several more properties on deck for a projected 5,166 additional rooms. Currently 1,381 rooms are under construction. In all, the city and adjacent metro areas hold just under 40,000 rooms.
Hotel rooms under construction currently
Market Name As of August 2016
New Orleans 1,381
Atlanta 1,580
Tampa/St. Petersburg, Fla. 1,878
Orlando, Fla. 2,129
Nashville, Tenn. 2,703
Houston 5,625
Dallas 5,143
New York 16,301
Source: STR
But for its size, relatively isolated geography, and the challenges the city has faced over the past decade, experts have found the hotel industry’s recent growth to be remarkable.
For Adam Lair, New Orleans-based managing director of HVS Consulting and Valuation Services, STR’s data and the bustle of hotel activity he has observed on the ground amounts to unheard of hotel growth in New Orleans. The boom is all the more surprising to many experts like him, given uncertainty over how the city might rebound after Katrina.
“New Orleans has never been through a period like this,” Lair said. “We have not just recovered from what we’ve had before, we’ve gone beyond.”
Lair and others describe a perfect storm of factors playing into hotel investors’ renewed interest in New Orleans, starting in 2010.
That year, a series of conventions were finally held after being postponed after Katrina, and brought crowds of business and leisure visitors. It was a major boost, Lair said, that opened new eyes to New Orleans’ post-storm landscape.
Next, interest in New Orleans hotels began to skyrocket, in part attributed to a new medical sector that has drawn doctors, technology suppliers, patients and their families in need of temporary stays.
But what’s whetted investors’ appetites most has been the steadily growing wave of tourists returning to enjoy New Orleans, after high-profile events such as the Saints’ Super Bowl win and even the 2010 Gulf of Mexico oil spill showed millions of television viewers that Katrina’s floodwaters had definitely subsided, Lair said.
“Once everyone started shining the light on New Orleans, there was a reality across the country that New Orleans was not totally destroyed,” Lair said. “So individual leisure travel has been particularly strong since 2010.”
Last year, the city hosted 9.78 million visitors, up 2.7 percent from 2014, according to statistics from the New Orleans Convention and Visitors Bureau. With those visitors came a record-setting $7.05 billion in spending, a 3.5 percent increase from 2014.
All that money and all those hotel guests caught the attention of investors looking to capitalize, said Lenny Wormser, senior managing director of Latter and Blum’s hospitality division. Where deep-pocketed, institutional clients once owned just 20 percent of the city’s hotels pre-Katrina, they now own about 80 percent, Wormser said.
He estimated hotels in New Orleans are selling for nearly $300,000 a room — about twice what they sold for pre-Katrina — and are poised to sell for as much as $450,000 per room in the near future. Meanwhile, hotel investors are reeling in profits from rising room rates. According to STR’s data, the average daily rate for a room in New Orleans has risen from about $116 in 2010 a day to almost $150 last month.
“You’re going to see a movement in corporate demand that has not been seen in quite sometime,” said Wormser, who has played a key role in deals to secure hotels on at least a dozen New Orleans properties in recent years. “We don’t know what’s going to happen 10 years from now, but barring an event you and I can’t control, we’re going up.”
Along with that capital has come willingness from established, large hotel companies to experiment with new brands, particularly from Marriott, which began brand-tinkering in 2014 when it transformed the old Cotton Exchange Building at 221 Carondelet St. into a 220-room AC Hotel.
Marriott now aims to open a 96-room Moxy Hotel on the site of a former office supply building at 744 St. Charles Ave. near Lafayette Square, and a 183-room dual-brand hotel in the former University of New Orleans tower at 1600 Canal St.
Hilton, likewise, has set its sights on a Canopy Hotel renovated from the Oil and Gas Building at 1100 Tulane Ave. Virgin is seeking to open a 183-room hotel at 550 Baronne St., which City Council members hope will entice founder Richard Branson to bring his airline to the city.
“Suddenly, we’ve become this place where New Orleans is a different market in the minds of the broader hotel community around the country,” Lair said. “We’ve become a testing ground for new brands.”
The booming hotel industry has also touched other sectors of the city’s economy, particularly hospitality management students enrolled at the University of New Orleans. Professor Kim Williams, director of the university’s Lester E. Kabacoff School of Hotel, Restaurant and Tourism Administration, said the boom has dramatically increased opportunities for graduating students who enter the hospitality workforce.
For that reason, Williams said she wants to boost the school’s enrollment from just under 200 students now to 800 students.
“We would like to get 800 because of the hotel boom,” Williams said. “I think there’s definitely the potential, when you look at the number of hotels now and the ones coming on board, that they are going to need many more employees for sure.”
Despite excitement across the board, many experts suspect the development boom may be nearing its end.
In STR’s data, Lair points to a key metric that measures the amount of revenue generated per room, RevPAR for short, as proof that the local growth may be leveling off. Though way up since 2010, RevPAR in New Orleans was down slightly in August compared with last year, from $66.58 to $60.62. So far in 2016, monthly RevPAR has been down every month from last year except April.
“We’ve kind of plateaued there, which is a good thing,” Lair said. “We’ve come a long way and we’re in this steady period right now where we’re just a strong market.”
Mostly, Lair and others attribute the slight RevPAR slowdown to a lack of money and space for new hotel developments. According to Lair and Wormser, construction financing is becoming tougher to secure, as options for where to build new hotels or renovate old buildings in the water-bound city have dwindled.
Moreover, tough regulations, legal challenges and blown deals leave large question marks hovering over Lair’s count of 5,166 future new rooms. In one of the more contentious projects, Four Seasons’ plan to open a hotel and condo development in the former World Trade Center building has been hamstrung by litigation for over a year.
Likewise, developers of a 373-room, 21-story hotel at Canal and Tchoupitoulas streets dropped the project in March of 2015, after facing fierce opposition from city officials and neighbors against its impact on the historic buildings on its footprint.
And in May, plans to build a two-tower, 510-room Hard Rock hotel in the Piazza d’Italia parking lots were scrapped after lease negotiations fell apart between the developer and the city, which owns the property.
“It’s tough to tell what year a lot of this will come online, if it even comes online period,” Lair said. “It’s anybody’s guess in New Orleans. If you look at any hotel project that’s going on now, it has been delayed to some degree by the approval process from its original plan.”
Others involved in the industry, like Louis David, feel more confident than Lair that those projects will happen. He stressed that hotel companies interested in New Orleans are not small potatoes, but rather big companies bringing major commitments, a lot of money and thorough research to the city.
“I haven’t heard of any projects that are in jeopardy,” David said. “Most [hotel companies] now are trying to figure out where they can put more hotels in New Orleans.”
John Campo, whose architect firm has designed many of the new hotels in the pipeline, pointed to the expansion of Armstrong International Airport as a sign that tourist hotel demand is likely to keep increasing. And even though the airport project includes a hotel with at least 140 rooms, Campo said it’s not enough.
“I’m not sure there’s going to be enough hotels to accommodate that number of tourists coming through the airport,” Campo said. “We’re turning every rock to find a spot. There’s just precious little space.”
Regardless of how it all ultimately shakes out, Campo believes the hotel boom essentially amounts to is a harder push in the direction where New Orleans has long been headed.
“We are and always have been a tourist city,” he said. “And New Orleans is better now than it has ever been to take advantage of that.”
