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Saturation point?


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  • | 11:00 a.m. January 6, 2017
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No city along the Gulf Coast is experiencing as much hotel development as downtown Sarasota, where a handful of projects are either under construction or recently debuted.

While tourism numbers have unquestionably surged in Sarasota County in the aftermath of last decade's economic recession, and the region has continued to ride a wave of discovery from Siesta Key Beach's designation as the nation's best sand a few years back, some analysts are questioning whether the city can effectively absorb the 817 new rooms that will open by 2018.

“There's a lot of great product on the horizon for downtown Sarasota, but it's coming online all at the same time,” says Kent Schwarz, an executive vice president who specializes in hotels with commercial real estate brokerage firm Colliers International Tampa Bay.

“And the other issue they have is, there aren't any significant new demand generators there — there's no new major office building or conference facility, for instance,” Schwarz says. “Because of that, I do have a degree of concern for the downtown area.”

Sarasota lost roughly 600 hotel rooms last decade, the result of new developments that supplanted the Holiday Inn downtown, the Half Moon Beach Club and other properties.

In the years since, development has shifted away from traditional beach-centric hospitality areas to Sarasota's downtown, which has steadily flourished with new residences and retail offerings since a master plan for the urban core was implemented in 2001.

The sheer number of new rooms, however, is raising concerns among lodging analysts and consultants, developers and operators alike that the Sarasota hotel market could suffer a dip beginning next year that could impact occupancy and room rates.

Some analysts contend existing hotels — especially Class B properties that have failed to modernize in recent years or are hampered by locations outside of downtown — will almost certainly be cannibalized when the new 255-room Westin Hotel, 180-room Embassy Suites & Spa, 163-room Hotel Sarasota and 81-room Sarasota Modern are completed. A 138-room aloft Hotel opened last summer.

“If there's not sufficient demand, that tends to dilute a market, so properties have to drop their rates or offer other specials to compete,” says Lou Plasencia, president of the Plasencia Group, a Tampa-based hotel consultancy.

“At least initially, newer properties will always steal business from existing hotels,” Plasencia adds. “The newest kid on the block always attracts attention at first. But often times, the overall positive net absorption is negligible, so it's just moving people around.”

One of the new hotel owners and the operator of the city's newest hotel offering share the view that Sarasota may have reached a saturation point for lodging -- at least for now.

“We definitely think there are too many beds being built, and we're seeing that around the state,” said Bob Vail, president of the urban division of the Kolter Group, which is developing the Westin Hotel and an adjacent 141-unit condo tower known as Vue Sarasota Bay. “That's been driven by easy access to financing for hotels, until recently.”

But Vail says the Westin won't directly compete with other brands or properties under construction.

“In the bigger picture, we won't compete with lower-priced brands or limited service product,” says Vail. “We intend to have a fair amount of business from meetings and groups. Right now we see ourselves filling a niche between the Ritz-Carlton and the Hyatt Regency.”

Jason Samson, general manager of the aloft Hotel in downtown Sarasota, says the additional hotel rooms slated to come online will have an impact — depending on the time of year.

“Of course there will be a net effect of adding all the rooms that are coming online,” Samson says. “We're concerned about it. In the tourist season, they won't have that big of an impact overall, but during the long summer months, I think there will be. There will be quite a bit of competition, but right now, hotels are hitting a sweet spot.”

He contends the city might need a conference or other municipal facility to smooth out travel peaks and valleys, a debate that has swirled about Sarasota for a quarter century.

For his part, Plasencia says Sarasota should not look toward a conference center to fill the additional room inventory.

“If we were asked what we would do to generate additional room nights in Sarasota, we'd advocate not for a conference facility, which are expensive to maintain and have a lot of competition to fill them, but rather to a sports-oriented facility that could accommodate karate tournaments and the like and build on the sports themes already in the area.”

Colliers International's Schwarz agrees.

“Look at what's happening with the Premier Sports Complex, IMG Academy and Benderson Park,” he says. “They're holdings events and bringing in thousands of athletes every year. People don't realize how many room nights venues like that generate.”

But some hotel developers in Sarasota say the market remains in need of newer product and more rooms to meet increased visitor demand and to make up for the properties that were taken out of inventory a decade ago.

“I contend the market there is still underserved,” says Kevin Daves, who co-developed the Ritz-Carlton, Sarasota that opened in 2001 and had planned a 200-room Marriott hotel downtown until state transportation plans recently derailed the proposal.

“Sarasota has just 10% to 15% more hotel rooms than it did in 2000, but tourism has surged during that time, and we've lost the Colony Beach & Tennis Resort on Longboat Key, a 100-room Holiday Inn downtown and so on,” Daves adds. “And now, downtown is where people want to be.

“I think there's room for at least one or two more hotels downtown, beyond the four or five that are under construction now.”

The developer of the 18-story Embassy Suites & Spa and a planned Hampton Inn & Suites slated for delivery by the end of 2018, both in downtown, thinks Daves is right.

“Everyone seems to have this sense that the hotel market in Sarasota is being overbuilt,” says Jebco Ventures' owner Jim Bridges, whose company will complete the Embassy Suites next year. “But we've conducted a market study that shows the hotel market is strong, and we believe it will get even stronger.
People want to be in Sarasota, and there's a lot of activity in the city and the surrounding areas.”

Lodging developers aren't the only ones who consider the hospitality market in Sarasota to be healthy, either.

“My view is downtown Sarasota is, and has been, undersupplied,” says Dan Peek, head of the hospitality practice group at commercial real estate brokerage firm HFF Inc. “The downtown area is unique, with arts and culture. If the travel market remains robust for 2017, I think the new product will be absorbed fairly easily. If the market turns softer, it may take a while.”

Still, Peek acknowledges the new keys may exceed consumer demand, at least initially, and hurt older, existing product.

“When there's new supply, there are always winners and losers,” he says. “For new products, the argument is going to be they have a better mousetrap, but I think it will absolutely be a situation where customers go from one hotel to another, at least at first.”

While opinions differ on how well the new hotels will perform, there appears to be universal agreement that proposed hotels will have a tougher time obtaining financing than the properties under construction.

At least three additional hotels -- Jebco's Hampton Inn, a Choice Hotels International and an unflagged lodging property within GreenPointe Holdings' Sarasota Bayside 15-acre project, all of which are located on Fruitville Road — are planned for downtown.

Combined, the trio of planned projects would contain nearly another 400 rooms.

“You couldn't underwrite a new hotel in downtown Sarasota right now,” Kolter's Vail says.

“There's still plenty of equity and debt out there available for new hotels, but I think going forward financing is going to be much more difficult to get, because of all the new product that has yet to be digested,” says Schwarz. “I think people will be able to get some really great rates in downtown Sarasota for the next couple of years.”

Downtown Sarasota Hotel Projects: 2016-2018
Hotel Sarasota
1255 N. Palm Ave.
163 rooms
Developer: Floridays Development Co.
Estimated Completion: Mid-2017

aloft Hotel
1 N. Palm Ave.
138 rooms
Developer: JWM Management Co.
Completed: May 2016

Westin Hotel (Vue Sarasota Bay)
1 N. Tamiami Trail
255 rooms
Developer: Kolter Group
Estimated Completion: Mid-2017

Embassy Suites & Spa
202 N. Tamiami Trail
180 rooms
Developer: Jebco Ventures
Estimated Completion: Late 2017

Sarasota Modern
1242 Blvd. of the Arts
81 rooms
Developer: Cocoanut Arts LLC
Estimated Completion: Undetermined

Sarasota Bayside
Fruitville Road and U.S. 41
175 rooms
Developer: GreenPointe Holdings
Estimated Completion: Undetermined

Choice Hotels
1351 Fruitville Road
118 rooms
Developer: Choice Hotels International
Estimated Completion: Undetermined

Hampton Inn & Suites
Fruitville Road and Coconut Avenue
163 rooms
Developer: Jebco Ventures
Estimated Completion: August 2018

Source: City of Sarasota Planning Department

 

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