Hotel investors like what they see in New Orleans

July 5 2011 | Latest News
Major firms cite sports events, storm recovery, but financing, continued growth are concern

Friday, July 1, 2011
Jennifer Larino, Staff Writer CityBusiness

To see what the future of New Orleans’ hotel investment looks like, go stand outside of the JW Marriott New Orleans on Canal Street downtown, says Lenny Wormser, a commercial real estate broker at Latter & Blum.

Lenny Wormser, a commercial real estate broker with Latter and Blum, says major investors are becoming more bullish on the New Orleans hotel market. (photo by Frank Aymami)

Wormser, who has owned, developed and sold hotels throughout the New Orleans area for more than 20 years, said the taxis running through the French Quarter and the steady stream of travelers crowding the sidewalks and streetcar stop only point up.

Investors seem to agree. Sunstone Hotel Investors of California purchased the JW Marriott for $94.3 million in February. Clearview Hotel Capital of Newport Beach, Calif., previously purchased the 494-room property for $55 million in January 2008.

Wormser, who was not involved in the February deal, notes hotel mega-investors from Starwood Hotel and Resorts to RLJ Cos. have invested in New Orleans for decades. But he says the hefty price tag of the Marriott deal points to a spending renaissance.

“These guys, they’re all here, and they’re here for a reason,” he said.

Wormser joins some of the nation’s leading hospitality analysts in his bullish attitude toward New Orleans. In early June, HVS, a leading international hospitality consultancy firm, identified New Orleans alongside San Francisco, Phoenix, Las Vegas and New York as markets ripe with hotel investment opportunity in the next five years.

With the recession moving deeper into memory, analysts say investors are itching to buy hotel properties in growth markets rather than build. Attracting those dollars depends on how New Orleans moves from recovery to growth in a post-recession battle for tourism dollars.

“There is a lot of speculation to come with existing (New Orleans) properties. A lot,” said John Williams, dean of the business and Kabacoff School of Hotel, Restaurant and Tourism Administration schools at the University of New Orleans.

HVS estimates a 35 percent increase in New Orleans per-room values in 2011 alone, meaning the average valuation of each hotel room in the city could reach $131,000 by the end of the year. Per-room values now average $78,000 nationwide.

Wormser and Williams noted that investors are attracted to the New Orleans survival story that was folded into media coverage following the New Orleans Saints’ Super Bowl win and Hurricane Katrina five-year anniversary in 2010.

And the Marriott investment and $250 million renovation of the Hyatt Regency near the Louisiana Superdome are turning heads.

But, Williams said, investors are sold on 2010 tourism figures. According to the UNO Hospitality Research Center, 8.3 million people visited the city last year and spending hit $5.3 billion, the highest it’s ever

Smith Travel Research’s April report showed that New Orleans was the first top U.S. market to see an increase in year over year average per-room revenue since the economic downturn, moving up 3 percent to $77.95 in revenue per available room.

“We’re defying what’s going on in the nation,” Williams said.

Darryl Berger, a New Orleans hotel developer and owner, added that hotel supply is closely tracking demand for the first time since developers added rooms at record pace in the late 1990s.

New Orleans was focused on recovering the 38,838 rooms available before Katrina during the recession and still is as it hovers near 35,000 rooms. Other markets, Berger said, added hotel rooms on speculation and crashed.

“Our fundamentals are looking very attractive,” he said.

In Houston, Robert Wiemer, senior vice president of the southwest region for The Plasencia Group Inc., a national hospitality investment consulting and advisory firm, said interest in New Orleans among his clientele is rising.

“A lot them will say, ‘Look, I like what’s going on. I want to hold a hotel during the Super Bowl,’” Wiemer said, referring to the string of national sporting events New Orleans will host, including the NCAA Men’s Final Four in 2012 and the 2013 Super Bowl. “There’s nobody saying ‘I want out of New Orleans at all costs.’”

Wiemer added that New Orleans is priced right compared with New York or San Francisco.

“I don’t see investors running back to high-dollar destinations and blowing that money,” Wiemer said.

But industry experts inside and outside of New Orleans say the picture isn’t completely rosy. In 2010 city leaders set a goal to attract 13.7 million visitors and generate $11 billion by 2018. They will have to do so with a tighter convention and tourism market against competitors such as Orlando, Fla., and Las Vegas.

Joe Canizaro, a New Orleans developer and chairman of First Bank and Trust Corp., said it also waits to be seen if financiers are on the same page as hotel investors.

“The biggest thing is the finance markets,” Canizaro said. “Will they allow development to take place as, maybe, is needed?”

Wormser at Latter and Blum added that the recovery of New Orleans’ infrastructure and public school system will determine the ease of attracting top hotel management and their families from throughout the country, a key part of investment.

“Those things have a primary, not a secondary, not a tertiary, (but) a primary impact,” he said.

Wormser said political and hospitality leaders in New Orleans started tackling those issues in unison a year ago. This year, he said, will be about building on the momentum of a favorable investment environment.

“Now people are finally getting the message,” Wormser said