What does the convention and visitors landscape look like in Springfield? To find out, Springfield Business Journal Editorial Director Eric Olson sat down with CEOs Gordon Elliott of Elliott Lodging Ltd., Tracy Kimberlin of the Springfield Convention & Visitors Bureau, Gail Myer of Myer Hotels Inc. and Tim O’Reilly of O’Reilly Hospitality Management LLC.
Eric Olson: In a word, how would you describe the temperature of the industry right now?
Tracy Kimberlin: We are having a great year. Last year was a record year. 2014 set a room demand record that goes back to the ice storm of 2007, when we had virtually 100 percent occupancy for three months. We are running well of ahead of 2014 so far.
Olson: So, to boil that down to a word, is it “record”?
Kimberlin: Yeah, or recovered. We are back.
Gordon Elliott: It’s good. It recovered a year and a half or so ago. We’ve been up, at 15 percent last year and 12.5 percent this year in Springfield. Most has come in room growth.
Gail Myer: Stunning.
Tim O’Reilly: Improving. There are still some things about the industry that might be on the upswing. Over the last four years, occupancy was steady because rates were suppressed, but that’s starting to climb and even out.
Olson: I think that was one of the records you were referring to Tracy. Average daily rate in Springfield was $80.75 in April, a monthly record. Same month, room demand was up 6.4 percent. What does that say for future development? With those numbers at a peak, is a good time to start turning dirt?
Elliott: I’d say the record in April was just April. There have been some things happen through June; it’s still no particular increase in occupancy. Rates are driven up mostly by the brand hotels. They use technology to check on everybody else. When they find a situation where the demand is high, their revenue management systems raise rates. The concern would be, if you have construction, the opposite would happen. Then you drop down on occupancy.
Olson: You’re saying the average daily rate being high is a parallel to occupancy going up?
Elliott: It’s driven mostly by the upper tier. They have had big increases in the average rate. For us, we mix the market. We are top to bottom because we have 12 properties in town. The bottom has done much better by not raising rates.
O’Reilly: As far as the issue of development, that is always a double-edged sword, as Gordon said. The laws of supply and demand work on the open market. There is always a chance you overdevelop. One of the issues is we have a very different situation here in Springfield than I think most other cities do our size. I call it the Hammons’ effect. Mr. Hammons was a well-respected incredible player in the hotel market, so all the brands have traditionally just done whatever he said. He basically said, “don’t develop in Springfield” – unless it was him. We have a number of different hotel brands that aren’t in this town that would normally be in a town this large. There is a strange undercurrent in our city where a lot of outside developers and brands are looking to place their properties. … They think because we are having rate increases and occupancy increases, they want to jump into the game here in Springfield. Wouldn’t you all agree, Springfield is a different market than many others?
Kimberlin: To take that a step further, you two guys have probably done more to increase average daily rate in Springfield than anybody else recently. In Tim’s case, he’s bought a couple properties he’s torn down. What used to be the old Motel 6, the Budget Inn, next to the Ramada. Also, what used to be the old Hilton out across (Interstate) 44. Those rooms came out of the inventory and, obviously, that will increase occupancy. On top of that, Tim has replaced those properties with quality facilities that run high average daily rates. When you take a dog out of the marketplace and replace it with a diamond, it’s going to go up. Then you have Gordon, who has wound up with a whole lot of properties that were depressed that he’s fixed up. He’s taken their occupancy and their average daily rate to a different level. That’s been a big driver lately. I do agree with Tim on the Hammons’ effect. There are hotel developers and corporations that have stayed away from Springfield because he was here.
Olson: Maybe now the city is on another radar, and they are approaching us with development plans?
Kimberlin: Maybe, but now they are going to be afraid of Tim and Gordon.
Elliott: I hope so.
Kimberlin: When you get out in the market, everybody is really interested in getting into Springfield. The fear would be, if one doesn’t know what the other is doing, you could all of a sudden have a lot of people jump in at the same time.
Olson: What flags, brands are looking? Are there opportunities you guys see?
O’Reilly: Marriott has several brands they don’t have in our market. The Fairfield Inn and Suites is one. We have a license for that. There are several Wyndham brands, several Choice brands that we don’t have. Just being in the market, I’m sure all of us get a lot of communication from the brands about that. I routinely get contact from Hilton and Marriott that people are active. We don’t have a Homewood Suites by Hilton. There are several people targeting Springfield.
Myer: In the U.S., right now, development is being led by brands. What they see is the opportunity because demand is up. You don’t have to know an awful lot to know when the stock market is up and gas prices are down, people feel better. They put more money in the budget for travel. At the beginning of this year, it was predicted in the U.S., those revenues would go up between 4 and 6 percent. That is a large amount. In Branson, it’s a much more complicated market. There are 140 hotels in Branson and it runs the gamut from, as he said, the dogs, to places like Big Cedar Lodge and Chateau on the Lake. You’re not going to see much development in Branson because it doesn’t make sense. It’s an overbuilt market. What you’re going to see is a separation of brands and operators. There are people in Branson in the hotel business who do very well and people who don’t do well at all. We don’t see the business traveler that Springfield does. But we have so many things that have been announced and so many offerings for people. It’s also a very stable market. You didn’t see a big downturn in Branson during the recession.
Olson: Tracy, you mentioned room supply. We have seen a trend in recent years of older properties coming off the market and being replaced by new. That caused a dip in supply, but it’s back up this year?
Kimberlin: It’s roughly where it was, a little bit less. We were overbuilt as well, but not as badly as Branson. We had probably 700 or 800 more rooms than we needed in Springfield for a good while.
Olson: So, us being overbuilt, was that maybe when we were in the 50 percent occupancy?
Kimberlin: Right, dragging down the average daily rate as well. People tend to fight for the business, and rate is an issue. Things are headed in the right direction now. Year-to-date, citywide we are at 59.6 percent occupancy.
Olson: It was higher earlier in the year?
Kimberlin: If you look at each month, it changes. We will probably end the year just over 60 percent.
Elliott: If you look at the ones that were torn down, generally they had very low occupancy and rates. It didn’t hurt the market much. It doesn’t have that much impact to drop those rooms.
Kimberlin: Yeah, there are a few more hotels out there. If you have a bulldozer, I could point you in the right direction.
Myer: The industry as a whole in the U.S. is underdemolished.
Elliott: That is particularly so for Branson.
Myer: Just because it’s a big market.
Kimberlin: To a degree, too, for Springfield because of the way the city has grown. Back in the ’70s, the primary way to get into town was Glenstone (Avenue) and I-44 and that’s where all the hotels were built. Now, a lot of those hotels are really old and tired and the city has grown south. More hotel development south has compounded the problem on North Glenstone.
Myer: One of the results of that, in Branson, because of how some of those buildings have aged along that (Highway) 76 corridor, they are beginning the West 76 project. That will be $100 million of infrastructure change along 76. It’s a huge deal and to their credit, proactive.
Olson: What does that do to the hotel landscape? Is demolition coming?
Myer: Construction in our business always gets worse before it gets better, but it does get better. That contemporizes that area and it will become a draw for folks. I think it depends on what the look and feel of that ends up being. I believe they are going to start this fall.
Olson: The underdemolished statement is interesting. Why is that? Is it because it’s such a costly proposition to build in the first place?
Myer: In general, they are big buildings. To tear one down and start over, in many cases, is a large task. First, people try to find alternative uses.
O’Reilly: They can be extremely profitable even though they are old. Their debt is usually gone. You can do a lot of great things with an older hotel.
Elliott: But there are some you can’t fix. Those are the ones I turn down. Tim tore one down, the old Hilton. I think it needed to be. It had been taken back several times by the financial institution until they realized their value was dirt and they sold it for dirt, right?
O’Reilly: Pretty much. I kind of saved someone from wanting to renovate that property.
Myer: It’s a really good location.
O’Reilly: Yeah, 70,000 cars a day is a good start.
Elliott: You’ve got problems in Branson. For example, they repurposed the Howard Johnson and the Days Inn. Those were 700 units. The Days Inn is still boarded. Somebody paid a very cheap price for it. It’s a demolition. I don’t see it coming back.
Myer: I think it’s easy to gravitate to those, but those exist in every major hotel community. What I see, the replacement going on is brand driven and it’s a facility war. It’s all about competing with each other for the best facility and, in some cases, the brands have lost sight of being nice to customers. I think technology has driven that. When you talk about kiosks, express checkouts and things where the customer doesn’t have to interface with the staff, I always scratch my head. How is that good for us being able to make customers happy?
Elliott: We were talking about a project with Best Western – we both have Best Westerns and are on the advisory board – and they have a new product out that is European in nature. It’s all social on the first floor and then stacks on four floors of small rooms. They have already sold a ton of franchises. They didn’t want to build it outside of Europe, the Asian markets or the coasts, but just recently, I convinced them I could make one work here, up the street were the San Francisco Oven is. We are in the process. That to me, I’m a little scared to invest where the outsiders are going to come in and put the same thing, but it makes more sense if you are after one deal. Even if it doesn’t work as good as you want, it’s going to get better as millennials come into a new desire for a different type of room. For instance, they don’t like doors or drawers. They want everything out so they don’t forget anything. It changes the architecture of how you build them.
Myer: Every brand right now is talking about how to get to the millennials and make them loyal customers. It’s the largest age wave that’s coming.
Interview excerpts by Features Editor Emily Letterman, eletterman@sbj.net.
