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Indigo tucks in economic blues

Atlanta Business Chronicle - January 29, 2010 - by Lisa R. Schoolcraft Staff Writer


Times may be tough in the hospitality industry, but an Atlanta hotel company sees an opportunity to expand.

Hotel Indigo will open its second hotel in Atlanta May 1 in the historic Carnegie building downtown, and may open others in the near future in College Park, Perimeter Center and Buckhead.

InterContinental Hotels Group Plc (NYSE: IHG) is planning a five-story, 142-room Hotel Indigo in College Park, which should come on line in 2011.

“The appetite for the brand is healthy, from a customer perspective and from an owner/developer perspective,” said Janis Cannon, vice president of global brand management for Hotel Indigo, a division of IHG, which has its North American headquarters in Atlanta. “Our goal is 250 Hotel Indigos by 2020. Our long-term goal is 600 for the brand.”

Hotel Indigo currently has 34 hotels in operation, with 10 under construction, including one in Shanghai, its first in Asia.

Hotel Indigo recently signed a deal in Hong Kong and “we have three other primary locations we are in negotiations on in Asia,” she said.

At least 70 percent of the 60 deals currently signed are in the United States, Cannon said, but global projects include three in the United Kingdom — a second in London and one each in Liverpool and Glasgow.

The hotel industry has seen declines over the past two years, but there are signs it is recovering, according to a recent report by PKF Hospitality Research.

Improving industry data for such key indicators as occupancy, revenue per available room, or RevPAR, and demand indicate the recovery may be quicker than expected, the report said.

“Make no mistake about it, 2010 will continue to be a tough year for U.S. hotel owners and operators,” said R. Mark Woodworth, president of PKF Hospitality Research in Atlanta. “We are forecasting that, on average, properties will continue to suffer year-over-year declines in revenue and profits from an already dismal 2009.”

But because room rate discounting has eased, the severity of losses incurred in 2009 and 2010 will be less than previously forecast, Woodworth said in the report. Nationwide, hotel occupancy rates were about 55 percent in 2009 and are projected to be 55.2 percent in 2010, the two lowest levels of occupancy observed since Smith Travel Research began reporting data in 1988, the report said.

A bright spot in the industry has been boutique hotels like Hotel Indigo, said Robert Mandelbaum, director of research information services for PKF.

“One of the thriving segments of the industry right now is the boutique hotel.” IHG says its boutique chain is doing especially well because it is part of the IHG brand. IHG spokeswoman Caroline Counihan said Indigo benefits from IHG’s Priority Club rewards and reservation system.

“We’ve been getting a lot of interest from independent hotel boutiques interested in joining Hotel Indigo because an independent hotel doesn’t have that,” she said. “It’s a big point of difference, that level of service.” Despite the tough economy, IHG made a profit in the third quarter, which ended Sept. 30, the most recent data available.

IHG reported a net profit of $67 million in the third quarter, compared with a $92 million net profit during the same quarter in 2008. But the company saw 4 percent growth in the number of rooms, including a 40 percent growth in the number of Hotel Indigo rooms, financial reports indicate.

Historic hotel Hotel Indigo’s newest Atlanta hotel, with 150 rooms, will be in the 12-story brick and concrete Carnegie building, 141 Carnegie Way, just off Peachtree Street. It’ll be the first since Hotel Indigo Midtown opened in October 2004 near the Georgian Terrace Hotel.

The Carnegie building began construction in 1924 by Morgan T. Wynne, an Atlanta real estate developer, at a cost of $890,000, according to the city of Atlanta’s Web site, and was originally known as the Wynne-Claughton Building.

It eventually got its moniker from the former Carnegie Library, which was across the street.

The Hotel Indigo project, including the purchase by Carnegie Hotels LLC, is about $35 million, said Paul Breslin, managing partner of Panther Hospitality, who consulted on the project. Atlanta-based Hotel Equities acquired the management contract for Hotel Indigo Atlanta, marking the first downtown Atlanta property in the hotel management and development company’s portfolio.

Hotel Equities, which owns or operates 46 hotels in eight states, also manages the Hotel Indigo in Miami Lakes, Fla.

“This is one of the most exciting projects I’ve worked on in my career,” said Fred Cerrone, Hotel Equities president and CEO, who has been in the hotel business for 40 years. “The fact it is in my hometown is even more exciting.”

Hotel Indigo isn’t the only boutique hotel in the downtown market. Others include the W Atlanta-Downtown in Ivan Allen Plaza, The Ellis on Peachtree and The Glenn Hotel. The Ellis and The Glenn are also in historic buildings.

But the downtown hotel market, like the rest of the hospitality industry, has faced declining occupancy and RevPAR over the past two years.

The downtown Atlanta hotel market saw its occupancy slip 12 percent in 2009, to 53 percent, according to data from PKF Hospitality Research and Smith Travel Research.

That compares evenly to the 53 percent occupancy for metro Atlanta hotels as a whole, the research showed.

Downtown’s average daily rate in 2009 was $134.09, down 5.8 percent from 2008, but much stronger than metro Atlanta’s average daily rate in 2009 of $87.91.

The downtown market’s RevPAR was $71.03, a drop of 17.1 percent over 2008 figures, the research showed.

For Atlanta as a whole, RevPAR was $45.54 in 2009.

PKF Hospitality Research predicts overall hotel occupancy in metro Atlanta will increase in 2010 to 53.4 percent, and that should hold true for the downtown market, which benefits from having conventions at the Georgia World Congress Center.

The 2010 convention calendar is very strong, Mandelbaum pointed out. “If convention attendance holds up, then the downtown market should be the primary beneficiary of the increased business.”