q1 2016 market focus: new orleans - the plasencia...

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Q1 2016

MARKET FOCUS: NEW ORLEANS

March 9, 2016 The options for hotel investments are as varied as the firms and people who invest in them. Whether it’s a limited-service hotel near a bustling airport or a luxury resort in wine country, prudent investors turn to the resources that drive sound decisions on buying, refinancing, selling, holding and improving their assets. In this quarterly series, our focus is on the dynamics that make specific markets of the United States particularly interesting.

In this issue, we turn the spotlight to New Orleans, Louisiana, a market where the consistent recovery from devastation wrought by Hurricane Katrina a decade ago is nothing short of remarkable. We share the practical insights we have gleaned from conversations with institutional and independent owners of hotels in New Orleans along with other relevant industry figures. We hope that you find this information insightful and we welcome the opportunity to discuss your hotel holdings with you, whether in New Orleans or elsewhere.

The following article appeared in New Orleans City Business as a follow-up to a New Orleans hotel owner and investor conference hosted by The Plasencia Group.

“Panel discusses New Orleans’ lodging challenges” (By Lance Traweek, December 7, 2015)

The need for improvements to New Orleans’ convention center district topped the list of challenges discussed at a recent roundtable of hotel owners and operators.

“Right now the city is losing business simply because it doesn’t have available space at the convention center,” said Lou Plasencia, CEO of The Plasencia Group, a hotel investment and consulting firm that hosted the meeting.

Its investment sales team has served as adviser of more than 20 hotel transactions in southeast Louisiana in the past 10 years, the most recent being the DoubleTree by Hilton on Canal Street in February 2015.

Robert Wiemer, The Plasencia Group’s senior vice president, said the expansion of the Ernest N. Morial Convention Center and an adjacent hotel will help increase the convention base in the city.

Other challenges for New Orleans include an increased competition from other cities, larger property tax assessments and the needs for more growth in corporate business travel.

The more than 20 roundtable participants, which were not disclosed by the group, cited positive efforts to attract the number of future group accounts now booked for the city, announced enhancements to the convention district and airport and focused efforts to provide a cleaner and safer French Quarter. “Crime continues to be something the city is focused on and needs to continue to be focused on,” Plasencia said. “We must get rid of that fear factor.”

State police recently increased its presence in the French Quarter in an effort to deter crime.

Despite the challenge noted by the New Orleans lodging industry, Plasencia said there is vast opportunity on the horizon in terms of increasing hotel values for owners and investors.

Plasencia expects the market will experience notable transaction pricing and volume through at least 2019. He said this will be achieved by strong sales volume, historically high price-per-key metrics, growth in occupancy and strong revenue per available room figures.

“New Orleans is one of those markets that is highly attractive,” Plasencia said.

One of the city’s strongest assets to attract conventions is its walkability aspect. Other major destinations for conventions like Dallas, Chicago and Los Angeles lack that walkability, Plasencia said. Meanwhile Austin and San Antonio, Texas, have become viable players in attracting conventions, Wiemer said.

“There is a central location that’s compact with easy accessibility to an airport,” Wiemer said. “The city needs to keep moving forward, whether it’s more convention and hotel space or more flights. There are so many appeals of New Orleans, and the city can capitalize on it.”

New Orleans At-A-Glance

In 2016, the number of visitors to New Orleans is projected to reach a record 28 million. In 2015, the city’s RevPAR of approximately $103 was one of the nation’s highest, exceeding RevPAR

recorded by Chicago, Philadelphia, Austin and Nashville. In 2014, New Orleans recorded the highest non-coastal market RevPAR in the United States. Transaction activity in the New Orleans area has accelerated during the past few years and many of

the industry’s most high-profile investors have acquired hotels in the region. During the next two years, area room supply will likely increase by approximately 10%. Over the past few years, both public and private institutions spent approximately $2 billion to develop

a state-of-the-art medical and biomedical complex along Canal Street, just north of Interstate 10. Passenger traffic at New Orleans International Airport (MSY) set an all-time record of 10.7 million

passengers in 2015. Construction recently commenced on a major, $826 million project to build a new airport terminal. The city’s tourism leaders clearly recognize the increasing competitive position of cities such as

Austin, Nashville, Tampa, Houston and Dallas for the “convention dollar.” As such, the city has embarked on a comprehensive effort to expand the center and revitalize an adjacent 47-acre tract with private investments totaling about $700 million. Conceptual plans include a 1,000+ room hotel, restaurants, entertainment, apartments and a pedestrian greenway. The development is expected to be completed by the city’s year-long tri-centennial celebration in 2018.

The World War II museum, considered one of the finest museums in the world, continues to expand by adding additional venues. The museum’s location in the vicinity of the convention district and cruise terminal create a very positive tourist combination for the warehouse and arts district.

Though the State of Louisiana is currently facing various budget challenges, it continues to proactively pursue Hollywood’s business and production segments with economically friendly tax incentives. During the past five years this has become a meaningful segment of the New Orleans hotel demand spectrum.

Notable New Orleans Area Transactions

In the past few years of hotel transactions in the city, full-service asset values range from between $200,000 to $300,000 per key. Select service assets have sold at prices in excess of $150,000 per key. Cap rates range from 7% to 9% depending on the submarket within the New Orleans metro area. Most sellers have been regional owner-operators who held assets for over a decade and have now taken advantage of current pricing dynamics. Larger, institutional investors, private equity firms and REITs have recently been the most active buyers in New Orleans.

Date Property Keys Price Price per key

Dec-15 Queen & Crescent 196 $51.2mm $261,224

Oct-15 AC French Quarter 220 N/A N/A

Jul-15 Marriott Metairie 210 $24.5mm $116,667

May-15 Le Pavillion Hotel 226 $62.5mm $276,549

Feb-15 DoubleTree Downtown 364 $85.3mm $234,341

Jan-14 Royal St. Charles 143 $25.0mm $174,825

Oct-13 Loews New Orleans 285 $73.4mm $257,684

Sep-13 Queen & Crescent 196 $20.8mm $106,122

Jun-13 Royal Sonesta 483 $120.5mm $249,534

May-13 Hilton St. Charles Avenue 250 $59.4mm $237,400

Apr-13 W French Quarter 97 $25.5mm $262,887

Apr-13 W New Orleans (Le Méridien) 410 $65.8mm $160,454

Source: Real Capital Analytics What does the Marriott-Starwood merger mean for New Orleans?

The anticipated Marriott and Starwood merger has raised many questions for owners and investors of just about every hotel brand as the consequences of any merger could be quite significant, especially for the larger “big box” hotels in a market. In New Orleans, as in the case in other large convention markets such as New York, Chicago, Denver, Los Angeles and San Francisco, the merger is expected to present opportunities and challenges to owners and operators. Generally speaking, comments from current Starwood owners tend to be neutral to positive, while similar conversations with Marriott owners tend to be neutral to anxious.

There are currently six Starwood hotels in downtown New Orleans, and fourteen Marriott properties with six additional planned or under development. While Marriott does currently dominate the market, Starwood does have two hotels in the “true” French Quarter, where Marriott does not have any. The largest current hotels for each brand, the Marriott and the Sheraton are situated across from each other on Canal Street.

The table and map on the following page highlight Marriott and Starwood hotels in downtown New Orleans.

New Orleans Marriott and Starwood Properties (Current and Pending)

Marriott Starwood Hotel Keys Hotel Keys Marriott – Canal 1,333 Sheraton – Canal 1,110 Ritz-Carlton – Canal 527 Westin – Canal 436 JW Marriott – Canal 501 Le Meridien – CBD 410 Marriott – Convention 331 Aloft – CBD 188 Renaissance – CBD 272 Four Points – French Quarter 186 Residence Inn – Warehouse 231 W – French Quarter 97 Courtyard – Iberville 230 AC – CBD 220 Renaissance – Arts 217 SpringHill – Warehouse 208 Courtyard – Convention 202 Queen & Crescent – CBD 196 Autograph – Canal 171 Courtyard – CBD 140 Residence Inn – CBD (Pending) 350 TownePlace – Canal (Pending) 105 Fairfield – CBD (Pending) 103 Moxy – CBD (Pending) 100 Moxy – Warehouse (Pending) 96 SpringHill – Canal (Pending) 78 Downtown Total (20 hotels) 5,611 Downtown Total (6 hotels) 2,427

New Orleans Marriott and Starwood Properties (Current and Pending)

New Orleans Hospitality Outlook: New Supply

The properties in the following tables illustrate the recent or upcoming influx of supply to the New Orleans market, whether new construction or the repositioning of existing properties to new or different brands.

Repositionings

Hotel Rooms Submarket Developer Opens Comments

Q & C 196 CBD Apollo Global Fall 2014 Queen & Crescent AC Hotel 220 CBD/FQ NewcrestImage Fall 2014 Cotton Exchange Old No. 77 Hotel 167 WH/CBD Provenance May-15 Ambassador Hotel H.I. Express 129 CBD Garrison Inv. Fall 2015 O’Keefe Plaza Hotel Moxy Hotel 100 CBD Noble Mar-16 Existing Quality Inn Fairfield Inn 103 CBD New Castle Apr-16 Existing Comfort Inn B Hotel 157 CBD InSite Summer 2017 Existing Hotel 504 Total (7 hotels) 1,072

Pending New Rooms (Certain/High Probability)


Four Seasons 350 CBD/FQ Carpenter & Co. Early 2018 World Trade Center Residence Inn 350 CBD Regional Developer Early 2019 Vacant lot Ace Hotel 234 CBD Domain Companies Summer 2016 Office building Brand or Independent 225 CBD/Medical Mike Valentino Early 2017 Days Inn Homewood Suites 207 CBD/FQ HRI Spring 2017 Office building Hyatt House 194 CBD Poydras Properties Oct-15 Now open Aloft Hotel 188 CBD/FQ HRI Mar-15 Now open Joie de Vivre 185 CBD Lisa Blank Summer 2016 Rault Hotel TownePlace/SpringHill 183 CBD/Medical NewcrestImage Dec-16 UNO Tower Virgin Hotel 183 CBD Gatehouse Capital Fall 2016 Vacant lot Canopy by Hilton 182 CBD Baywood Hotels Summer 2017 Oil & Gas Building Cambria Suites 162 Arts/Warehouse Fillmore Hospitality Spring 2017 Vacant lot Courtyard 140 Kenner Mike Vira Spring 2018 Vacant lot Brand or Independent 135 CBD MCC Summer 2016 Jung Hotel Hotel Loren 132 Medical District Narinder Gupta TBD Vacant building Royal Cosmopolitan 126 CBD/FQ Angelo Farrell TBD New construction Holiday Inn 120 Kenner Mike Vira Fall 2016 Vacant lot SpringHill Suites 120 Metairie Pinu Patel Fall 2016 Vacant lot Homewood Suites 115 Metairie Pinu Patel Summer 2017 Vacant lot Moxy Hotel 96 CBD/Warehouse Barry Dinvaut TBD Pending approvals Ochsner Hospital 90 Uptown Mike Valentino Fall 2016 Office building Boutique 80 French Quarter Wayne Ducote TBD Office building Boutique 70 Adjacent to FQ Nathalie Jordi TBD Closed church

Total 3,867

New Orleans Hospitality Outlook: New Supply, cont. Development of the projects in the following table is less certain, but worth noting as potential new supply to enter the market.

Pending New Rooms (Tentative)


Hard Rock 510 CBD TBD TBD Vacant lot

WW II Museum TBD Warehouse WW II Foundation TBD Existing buildings

Possible Hotel TBD CBD Building and Land TBD NOPSI building

Possible Hotel TBD CBD MCC TBD Plaza Tower

New Orleans Performance Metrics The operating performance at New Orleans hotels has been very strong in the past year. The city has been in the same league as other major gateway markets such as New York, Miami, San Francisco and Los Angeles. The tables below provide a clear picture of the market’s historical and projected operating performance.

Historical & Projected Percentage Change in RevPAR

Segment 2011 2012 2013 2014 2015F 2016F 2017F 2018F 2019F New Orleans 4.4% 14.6% 6.4% 4.5% 1.5% 2.7% 4.4% 3.8% 2.8%

New Orleans Upper-Priced 5.3% 11.4% 7.7% 5.7% 1.2% 2.8% 4.9% 4.1% 3.2%

CBD/FQ Upper-Priced 5.7% 11.1% 8.1% 6.0% N/A N/A N/A N/A N/A

Historical & Projected RevPAR

Segment 2011 2012 2013 2014 2015F 2016F 2017F 2018F 2019F New Orleans $78.34 $89.78 $95.52 $99.81 $101.31 $104.04 $108.59 $112.67 $115.80

New Orleans Upper-Priced $99.42 $110.74 $119.31 $126.15 $127.66 $131.19 $137.68 $143.32 $147.86

CBD/FQ Upper-Priced $102.98 $114.38 $123.64 $131.11 N/A N/A N/A N/A N/A

Source: PKF, as of Fall 2015

New Orleans Performance Metrics

Smith Travel Research Year-End 2015 Operating Metrics (Ranked by RevPAR)

Market RevPAR % Change ADR % Change Occ. % ChangeNew York $219.39 -1.7% $259.11 -1.6% 84.7% 0.0%

San Francisco $188.05 7.5% $222.90 7.1% 84.4% 0.4%

Oahu Island $187.32 4.1% $219.55 3.0% 85.3% 1.1%

Miami $152.83 6.0% $195.75 5.9% 78.1% 0.0%

Boston $143.81 7.9% $188.08 6.2% 76.5% 1.5%

Los Angeles/Long Beach $126.19 8.8% $158.37 7.5% 79.7% 1.2%

San Diego $115.11 8.6% $150.73 6.1% 76.4% 2.4%

Anaheim/Santa Ana $113.31 9.4% $143.98 6.2% 78.7% 3.0%

Seattle $113.14 8.8% $148.45 7.8% 76.2% 0.9%

Washington, D.C. $105.75 5.4% $149.64 3.0% 70.7% 2.3%

New Orleans $103.30 3.4% $148.20 2.3% 69.7% 1.0%

Chicago $99.88 6.9% $142.69 5.9% 70.0% 1.0%

Austin(1) $99.43 8.3% $134.76 6.3% 73.8% 1.9%

Nashville $93.11 11.1% $126.67 8.7% 73.5% 2.2%

Denver $91.41 7.9% $120.78 7.4% 75.7% 0.5%

Philadelphia $87.24 5.5% $128.01 4.3% 68.2% 1.2%

Orlando $86.19 9.1% $112.00 4.8% 77.0% 4.1%

Tampa/St. Petersburg $82.28 13.8% $114.56 7.7% 71.8% 5.6%

Phoenix $79.77 12.8% $121.09 8.0% 65.9% 4.4%

Minneapolis/St. Paul $76.72 5.8% $112.17 4.2% 68.4% 1.5%

Houston $74.42 -3.3% $108.63 1.6% 68.5% -4.8%

Dallas $69.81 10.0% $98.91 5.7% 70.6% 4.1%

San Antonio(1) $69.33 3.2% $106.83 3.1% 64.9% 0.0%

Atlanta $68.40 9.3% $97.78 6.4% 69.9% 2.7%

St. Louis $64.73 5.3% $99.03 3.5% 65.4% 1.8%

Detroit $61.91 6.6% $94.14 5.5% 65.8% 1.0%

Norfolk/Virginia Beach $53.87 7.4% $94.45 3.3% 57.0% 4.0%

Top 25 Markets $108.47 6.1% $147.30 4.3% 73.6% 1.7%

All Other Markets $64.88 6.4% $104.97 4.5% 61.8% 1.8%

Total United States $78.67 6.3% $120.01 4.4% 65.6% 1.7%

Source: Smith Travel Research (1) Not a Smith Travel Research Top 25 Market.

Investment activity in the lodging sector may be plateauing, with lackluster REIT performance as a potential indicator of a looming slow-down. Whether you’re considering buying, selling or holding, the team at The Plasencia Group is poised to offer sound guidance on your investments. If you’d like to discuss any of the topics presented here, or would like The Plasencia Group to evaluate your portfolio of lodging investments, please contact us.

THE PLASENCIA GROUP, INC.

Lou Plasencia Chief Executive Officer (813) 932-1234 [email protected]

Relevant Transactions by The Plasencia Group

The Plasencia Group’s professionals have been active in the New Orleans region for over 30 years. During the past decade, The Plasencia Group has successfully completed 21 dispositions and debt placements in this region for a total transaction volume of approximately $500 million, representing nearly 5,500 keys.

Robert J. Wiemer Senior Vice President (281) 379-2613 [email protected]

Sources: PKF; Smith Travel Research; Real Capital Analytics; New Orleans Convention & Visitors Bureau; New Orleans City Business; The New Orleans Advocate The Plasencia Group ("TPG") has compiled the above information utilizing sources deemed reliable, and the information is presumed to be accurate. However, TPG does not warrant that the information is accurate, up-to-date or complete. Use of any projections, opinions, assumptions or estimates herein without verification from independent sources is at your own risk.

Corporate Headquarters: One North Dale Mabry Highway, Suite 1000, Tampa, Florida 33609, USA

(813) 932-1234 | www.tpghotels.com

q1 2016 market focus: new orleans - the plasencia...

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