Room to grow?

At least seven different hotel projects planned for the Fort Collins-Loveland area would bring about 800 new rooms into the area over the next two years, a possibility that promises tens of millions of dollars in new construction, but might also test some nerves in the marketplace.

“There are just too many rooms right now,´ said Jeff Lamont, owner of a new Holiday Inn Express in southeast Fort Collins. Lamont opened his 89-room property in October, and has lamented the lack of occupancy since then.

“It’s been pretty slow,” he said with surprising candor. “I’m not really happy with it.”

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Lamont declined to disclose the occupancy rates at his hotel, but it’s likely he’s not the only hotelier disappointed in the numbers.

Occupancies for the Fort Collins-Loveland area started sluggishly this year, according to the latest Rocky Mountain Lodging Report. Through March, local occupancy registered at 48.3 percent, said Bob Benton, editor of the lodging report. That compares to 53.8 percent at the same point in 2005.

Such calculations would seem to work against the emergence of other hotels. Still, developers of the seven new projects – one has already broken ground – aren’t likely to back down.

Three of the new hotels are projected for the Harmony Corridor in southeast Fort Collins, in the same vicinity of Lamont’s Holiday Inn Express.

First in line is the 98-room Homewood Suites, located in the Oakridge Business Park. The project, developed by Intermountain Management LLC, started construction last month and is scheduled to open by the end of the year, said Intermountain spokeswoman Shawna Brown.

Two other properties, a 120-room Hilton Garden Inn and a 90-room Cambria Suites, still require approval from Fort Collins planning officials. The hotels are both proposed for the Preston Center development, in the 2800 block of East Harmony Road.

In both cases, the developers hope to be under construction this summer, and be open by spring of 2007.

Four other projects are in store in Loveland, including the long-announced 250-room Embassy Suites hotel-convention center project at The Ranch in Loveland. Developer John Q. Hammons, who also built the Hilton Fort Collins near the Colorado State University campus, plans to start construction this summer and open the facility, which includes an 80,000-square-foot convention hall, by early 2008.

Meanwhile, construction is under way for a 103-room Residence Inn by Marriott at the Centerra development in Loveland, to be complete this fall. Plans are also in the early stages for an 82-room Holiday Inn Express and 60-room Candlewood Suites, both in the vicinity of Crossroads Boulevard and I-25.

These seven projects don’t include the possibility of new hotels at other intersections along the Interstate 25 corridor. Hotel sites have been drawn into plans at four other commercial developments along the highway between Johnstown and Windsor.

One good hotel deserves another

The timing of the hotel surge in Northern Colorado – 800 new rooms would expand the local market by roughly 30 percent – is due in part to the development of the Embassy Suites.

According to industry wisdom, a convention at an 80,000-square-foot meeting hall creates enough business to require 600 hotel rooms. The Embassy Suites will serve less than half that need.

“All the other hotels will benefit from that compression,´ said Alex Cooke, owner of the BestWestern University Inn and the BestWestern Coach House in Loveland.

Another motive for hotel developers is the expectation for future population growth, as well as business expansion along the I-25 corridor. Market research reports can’t miss the fact that southwest Weld County is among the fastest-growing areas in the country.

Developers are also enjoying relatively easy access to capital.

“Money for the hotel industry is fairly readily available right now,” Benton said. “If we count on banks as being the brake, in terms of the ones who are sane … history tells us that doesn’t work.

“They’ve got money to lend and they’ve got to lend it.”

Finally, despite the overall weak occupancy rates, newer hotel properties along Harmony Road in south Fort Collins have enjoyed robust business over the past decade. That success is bound to draw other investors who think they can share the wealth.

“Fort Collins has some fairly distinct lodging markets,” Benton explained. “The southern portion … tends to outperform the overall market.”

Slow to digest

The absorption of 800 new rooms, or even half that number, in the Fort Collins-Loveland market, could be a slow process, according to Benton, a veteran observer of the hotel industry in Colorado.

“You’ll see some kind of decline in overall market occupancy,” Benton said. “Some hotels will get hurt worse than others. We’ll see the market go down, and then we’ll see the rooms absorbed.”

Still, it remains to be seen if all of the announced projects will be built, or if some will sputter. Benton’s witnessed similar situations with many hotels in the works, “but as hotels start to develop and the market conditions get soft, then some of the projects that didn’t move right away will be either delayed or canceled.”

On the other hand, he said the developers with eyes on Northern Colorado might be positioned to ride out any downtown. “These are all people who seem to have money,” Benton said.

One possible fallout of the influx of rooms is a price war.

“Typically when you see an oversupply of hotels in the market, some hotels will begin to reduce rates, and other hotels are typically forced to follow,” Benton said. “The only one who wins in that game is the consumer. You get the same number of consumers, who end up spending $10 or $20 less a night.”

The prospect of oversupply was enough to keep Alex Cooke from moving ahead with his own plans for a new hotel at the northwest corner of Crossroads Boulevard and I-25.

“My feasibility report said it’s too early,” Cooke said.

Cooke and his would-be investors saw the vast stretches of land available around the Budweiser Center and Centerra, and felt it was likely to lure other hotel developers.

He recounted the story of the Denver Tech Center, where the announcement of the new office complex in the 1970s spawned a furious influx of new hotels on the outskirts of south Denver

“It’s the same situation,” he said. “There’s a ton of land that could easily lead to overbuilding.”

Nevertheless, Cooke’s not entirely sour on the market. He’s investing $2 million into renovations at the 88-room BestWestern Coach House, including the addition of 18 suites.