Detroit Free Press
Hyatt, Ritz-Carlton could undergo changes in an impending shakeout
Good news for travelers in or to southeast Michigan! Hotel room rates are falling!
And the biggest bargains are at the fanciest lodgings: Average room rates dropped 16% during 2009 at high-end local hotels with names like Ritz, Hyatt, Westin and Townsend.
What's good for the traveler, however, is punishing for the innkeeper.
Good news for travelers in or to southeast Michigan! Hotel room rates are falling!
And the biggest bargains are at the fanciest lodgings: Average room rates dropped 16% during 2009 at high-end local hotels with names like Ritz, Hyatt, Westin and Townsend.
What's good for the traveler, however, is punishing for the innkeeper.
Looks like we're on the verge of a major shakeout in the Detroit region's hotel market, because of the auto industry's upheaval, a credit crunch and a growing room glut as Detroit's new casino-hotels opened just when demand was tanking.
The Hyatt Regency Dearborn, a premier conference and convention hotel with 772 rooms and 62,000 square feet of meeting space, "is one of the first major hotel properties nationwide that's come on the market since the big downturn," said Rick George of HREC Investment Advisors, which was recently hired to handle the sale.
After paying $40 million for the Hyatt in 2007, the hotel's current Dallas-based owner is in default on its debt. The hotel posted an operating profit of $4.4 million in 2008, but swung to a $1.3-millon loss last year and the owner stopped making debt payments last June.
George said the hotel, which he expects will sell for $13 million to $15 million, "can do pretty well" when the economy improves, because the new owner will get it "for pennies on the dollar." He said it's unclear when the market will improve, though, and whether Hyatt will continue to run the hotel. That depends on how much a new owner is willing to invest.
Under pressure
"There are going to be some victims" of the local shakeout, said Chuck Skelton, president of Hospitality Advisors Consulting Group in Ann Arbor.
Marginal hotels will shut down and even the best properties may get new owners or new names.
"I think the Ritz-Carlton in Dearborn is probably destined to carry another flag," Skelton said. "It's probably under a lot of pressure. I think it will be on the market."
Hotel room rates are under such pressure in metro Detroit that even the best luxury names, like the Ritz, can't command prices high enough to cover the costs of providing the ultra-luxury service and amenities that world travelers expect from a Ritz.
"There are a lot of rumors flying around," said Vivian Deuschl, vice president of public relations for Ritz-Carlton, "but it's nothing more than speculation.
"For now it's business as usual," she added. "We know that Detroit is a very, very difficult market."
Detroit is not alone. Last week, Ritz-Carlton said it will close its Ritz-Carlton Lake Las Vegas hotel in May.
Total hotel revenues in the metro Detroit market plunged 19.3% last year to $578 million, down from $716 million in 2008, according to Smith Travel Research. Average occupancy fell from 55% to 48% last year.
And to make matters worse, as demand was falling, the total number of hotel rooms in the Detroit region grew by 3,000 in the past two years, from 39,400 in early 2007 to 42,500 by mid-2009.
Less lavish, less travel
It would be nice to think that Detroit will experience a big resurgence of demand for hotel rooms, restaurants and other hospitality services as the auto industry stabilizes and the Cobo Center convention center is upgraded and expanded.
Don't bet on it, though. Truth is, our hotel capacity was built for a time that no longer exists, when Michigan's population was growing and local companies were entertaining lavishly.
Here's another ominous trend for the travel business. Skelton said many 25- to 40-year-olds are more comfortable sitting in front of a camera and video screen for a teleconference than they are with hitting the road with face-to-face contact and hassling with airport security.
Travelers finding bargain rates at hotels may be happy, but there just aren't enough of them to keep the innkeepers prosperous.
The Hyatt Regency Dearborn, a premier conference and convention hotel with 772 rooms and 62,000 square feet of meeting space, "is one of the first major hotel properties nationwide that's come on the market since the big downturn," said Rick George of HREC Investment Advisors, which was recently hired to handle the sale.
After paying $40 million for the Hyatt in 2007, the hotel's current Dallas-based owner is in default on its debt. The hotel posted an operating profit of $4.4 million in 2008, but swung to a $1.3-millon loss last year and the owner stopped making debt payments last June.
George said the hotel, which he expects will sell for $13 million to $15 million, "can do pretty well" when the economy improves, because the new owner will get it "for pennies on the dollar." He said it's unclear when the market will improve, though, and whether Hyatt will continue to run the hotel. That depends on how much a new owner is willing to invest.
Under pressure
"There are going to be some victims" of the local shakeout, said Chuck Skelton, president of Hospitality Advisors Consulting Group in Ann Arbor.
Marginal hotels will shut down and even the best properties may get new owners or new names.
"I think the Ritz-Carlton in Dearborn is probably destined to carry another flag," Skelton said. "It's probably under a lot of pressure. I think it will be on the market."
Hotel room rates are under such pressure in metro Detroit that even the best luxury names, like the Ritz, can't command prices high enough to cover the costs of providing the ultra-luxury service and amenities that world travelers expect from a Ritz.
"There are a lot of rumors flying around," said Vivian Deuschl, vice president of public relations for Ritz-Carlton, "but it's nothing more than speculation.
"For now it's business as usual," she added. "We know that Detroit is a very, very difficult market."
Detroit is not alone. Last week, Ritz-Carlton said it will close its Ritz-Carlton Lake Las Vegas hotel in May.
Total hotel revenues in the metro Detroit market plunged 19.3% last year to $578 million, down from $716 million in 2008, according to Smith Travel Research. Average occupancy fell from 55% to 48% last year.
And to make matters worse, as demand was falling, the total number of hotel rooms in the Detroit region grew by 3,000 in the past two years, from 39,400 in early 2007 to 42,500 by mid-2009.
Less lavish, less travel
It would be nice to think that Detroit will experience a big resurgence of demand for hotel rooms, restaurants and other hospitality services as the auto industry stabilizes and the Cobo Center convention center is upgraded and expanded.
Don't bet on it, though. Truth is, our hotel capacity was built for a time that no longer exists, when Michigan's population was growing and local companies were entertaining lavishly.
Here's another ominous trend for the travel business. Skelton said many 25- to 40-year-olds are more comfortable sitting in front of a camera and video screen for a teleconference than they are with hitting the road with face-to-face contact and hassling with airport security.
Travelers finding bargain rates at hotels may be happy, but there just aren't enough of them to keep the innkeepers prosperous.
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