Texas Hotel Construction: Higher Oil Prices Could Stimulate More Building, Says Arch-Con’s Michael Vaughn
HOUSTON – (Realty News Report) – The hotel industry in America’s fourth-largest city and its energy capital, has remained relatively flat over the past few years as a result of price gyrations in the energy sector. However, oil prices are recovering and that could jump start hotel building. For example, Houston’s Arch-Con Construction has nearly 1,200 keys under construction throughout Texas — half in Houston. To find out more about where the sector is heading as well as the latest trends in the hospitality industry, Realty News Report sought out Michael Vaughn, senior vice president at Houston-based Arch-Con. Vaughn, who leads the Hospitality and Multifamily Divisions, has been with Arch-Con for nearly 15 years.
Realty News Report: What’s your sense of hotel construction in Texas in the coming months? Has Arch-Con been approached by a growing number of hotel developers or is construction going to be flat for the next couple of years?
Michael Vaughn: The overall market has been flat in Houston for the last few years and occupancy/rates have been stable. We are experiencing projects that are now proceeding with construction that were previously on hold. We have seen a decline in the Energy Corridor, Downtown and The Woodlands, but with oil now over $60 a barrel, we expect more interest in the market.
Realty News Report: Arch-Con has more than 1,100 rooms under construction or about to break ground in Texas – half of them in Houston. Why the surge in hotel construction here?
Michael Vaughn: More projects have moved forward recently that probably would not have been able to a year ago. This is because lending terms are now more favorable, and there is more interest in the Houston economy from equity players.
Realty News Report: The company recently transformed the historic Stowers Furniture building, constructed in 1913, into the Aloft Houston Downtown. Is conversion a increasing part of the hospitality industry today?
Michael Vaughn: Federal and state tax incentives are a large reason why hospitality conversions in urban markets have seen an uptick. Many office buildings that sat vacant for years are now being repurposed and converted to hotels. Tax incentives allow an owner or developer to agree to meet certain requirements that qualify the project as a Historic Preservation project. As long as the project meets these federal requirements and becomes recognized on the National Register of Historic Places, an owner can save on a portion of sales tax that would normally be applied to a remodel. With these incentives, many projects have been able to occur.
Realty News Report: Speaking of redeveloping downtown buildings into hotels, how many historic buildings remain as possible redevelopment projects? Has the inventory of old buildings been used up?
Michael Vaughn: There are still buildings that would qualify for conversion, but finding a brand or flag that is available can be more challenging than finding a building.
Realty News Report: We’re hearing a lot about dual branded properties – a Hilton Garden Inn on one side of the property and, say, a Hilton Suites on the other. Why?
Michael Vaughn: Dual brands are a trend that we are seeing more of these days. Developers can build a hotel with the efficiencies of a smaller piece of land that can offer two hotel brands on the same site. These hotels can also share the same back of house services that make the hotel more efficient to operate. These make development more attractive in high density, urban areas where the cost of land cannot support a single hotel on its own.
Realty News Report: Is the success of Airbnb causing problems for the industry?
Michael Vaughn: Yes, this is probably one of the most important factors affecting how hotels attract new customers and retain old customers. Younger customers do not have brand loyalty like older generations and technology like Airbnb is making booking a place to stay simple and cheap. People are seemingly choosing simple and cheap without the services hotels provide.
Realty News Report: What about millennials? Are developers aiming more hotels at millennials? AC Hotel by Marriott for example?
Michael Vaughn: Hotel brand franchises are restricted by geographic area. The AC Hotel is a European-lifestyle brand that is coming to the downtown market because the typical brand franchises are already taken. The AC Hotel is not targeting millennials. However, millennials are shaping some of the services that are being offered by hotel brands. Our Aloft Houston Downtown project is an example of services you would expect to see provided to the younger generation. Such examples are grab-and-go food, pool tables, games in the lobby, etc.
Realty News Report: What are some of the latest trends in hotel design? Smaller rooms? More compact lobbies? Bigger gathering spaces?
Michael Vaughn: Advanced built-in furniture, electronic check-in and digital room keys are changing the way people access the hotel and use the rooms. Also, outsourcing linen service is becoming more common, so architects aren’t designing laundry rooms. Therefore, less back of house space is required.
Realty News Report: The Valencia Group just opened the Hotel Alessandra in downtown Houston. Is that a good move?
Michael Vaughn: Yes. We have seen a big move to boutique and non-franchised hotels. Reasons for this are the lack of brand availability, the elimination of franchise fees and the freedom of design outside franchise standards.