Since the last update staff has met with various stakeholder groups including:
▪ 8/4/17 - Site Walk
▪ 8/4/17 - Lunch & Learn
▪ 8/10/17 - West Davidson
▪ 8/10/17 - Spinnaker Cove
▪ Various - Additional Stakeholders [Calls, Emails, Meetings]
While these meetings certainly garnered feedback on things like safety, traffic, and parking, most people haven't heard too much feedback on the need for a hotel in the first place. To that point, aShortChronicle wanted to pass along some information provided to the Board on Friday. It comes from an individual with years if experience in the hotel industry and raised some serious questions about the very need for a new hotel on top of the numerous safety issues of the site itself.
It seeks to answer the question "Is there sufficient demand in the market to justify increasing the supply in the face of so many risks?"
Information was collected using Smith Travel Research (www.str.com) data from the 24 hotels within a competitive proximity to the proposed site. The average hotel size in the sample was 91 rooms with a combination of full service, select service and extended stay brands. Year to date through the end of July, this competitive set has averaged a 73.5% Occupancy with a $95.40 Average Daily Rate (ADR). Occupancy is down -6.4% from prior year, representing a loss of -23,113 room nights from just the first 7 months last year. On this pace, the competitive set (Comp Set) hotels are projected to lose -39,622 room nights in 2017 as compared to 2016. At the current ADR, this represents a forec asted revenue loss of nearly -$3.8M to the immediate areas hotels this year compared to last year.
For this proposed site to be considered a successful and profitable hotel venture, one needs to look at market share. A Revenue Generation Index (RGI) is the measure of market share for a hotel. A hotel with less than 100 RGI has less than its fair share, an RGI over 100 has more than its fair market share. To reach fair market share, this hotel would need to meet or exceed the market average occupancy and/or rate. This hotel would need to generate over 30,000 room nights at the current market occupancy at the prevailing ADR to be considered successful in industry standards.
In support of my own data research, the most recent Hotel Horizons report from CBRE Hotels' Americas Research (formerly PKF) (https://pip.cbrehotels.com/) forecasts a continued decline in occupancy for the Greater Charlotte Area (which includes Davidson) every year for the next five years through 2021. The Northwest Charlotte Sub-market as defined by Smith Travel is not immune to this decline and as a result developers have only 3hotel projects currently in the pipeline! This Smith Travel Research defined Sub-market extends from Huntersville to Davidson and also includes Gastonia to Lincolnton.
Considering the location of the proposed hotel project in regards to limited access, highway visibility and distance from corporate demand generators in Mooresville, Huntersville and Lake Norman, the 30,000 room nights would need to be generated primarily from new demand coming into the Davidson market as it would be unlikely to pull room night production from those other markets which offer supply well in excess of the demand available.
Is the current Homewood Suites turning away 30,000 room nights per year because it has reached capacity?
Is the the current occupancy trend at the Homewood Suites in contrast to all available industry statistics, averages and forecasts for this market?
For this hotel development project to be feasible and considered a financial success, several statistically unlikely things must take place:
1. The Davidson market would have to create the demand for an additional 30,000 room nights per year, nearly doubling the existing estimated average for the city. Who or what would be the source of this additional demand?
2. This hotel would have to defy all current market data, trends and forecasts in both the immediate area, the Northwest Sub-Market and the Greater Charlotte Area. What would be the differentiating factor for this hotel that would give it such a market advantage?
3. The developer would have to maintain the current business levels at his existing property. Even if the Homewood Suites is averaging an occupancy at 15% higher than the market average, it is consuming at most 40,000 room nights per y ear. Can the city of Davidson attract or create the demand for over 70,000 consumed room nights that this developer would need to be successful?
If this proposed hotel beats all these insurmountable odds, the highest possible net growth to occupancy tax generated for the city would be approximately $220k. Is this doubtful and highly unlikely gain sufficient to offset the known risks and negative impact to the area?
What is interesting about this above analysis is that it clearly shows additional data is available to assess the need for this hotel. It is not just taking the developer's word for it like the Town is doing with the parking needs for this project. It also shows the Town staff clearly has more work to do on the economic development front to appropriately educate itself and the Board. Staff, not the developer, should also vet the following:
- Exactly how many FTE does the developer plan to employ? How does this compare to the FTE and similarly sized hotels in this area? The developer can not be allowed to inflate this number for the purposes of a "job creation" sales pitch.
- How exactly did the developer calculate its parking need? How many sold out dates were sampled? What times were sampled on those days? What is the most common mode of transportation for those rooms that don't have cars?
The same exact types of analysis would apply to the Luminous project and its hotel proposal which is even bigger.
Yes, the private sector has the right to risk its own money on these ventures, but in both cases Davidson elected officials truly have the final say in whether or not these projects go forward. With that final say comes responsibility. In turn Davidson Staff has the responsibility to provide them the information needed. To date, it looks like the Town is relying on the developer to do that job for them and that is not a good.place to be.
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