Star Metals Hotel On Hold For Better Pricing, Developer Says

Developers are delaying the start of planned boutique Star Metals hotel project in hopes that the coronavirus pandemic could make financing and construction pricing more favorable in the near future.

Allen Morris Co. will hold off breaking ground on its 164-room boutique hotel until the fourth quarter, CEO W. Allen Morris said.

The developer originally planned to start construction on the hotel in the second quarter. The reason for the delay: Morris predicts better financing terms and construction pricing as the economy emerges from the depths of the pandemic-fueled recession later this year.

"We are already seeing construction costs adjusting to more rational numbers in other cities, and we are expecting more reasonable construction costs in the Atlanta market as well," Morris said in a text message. "We will be closing on the purchase of our hotel site this week, so we are clearly committed to moving forward on the Star Metals Atlanta Hotel."

Morris initially disclosed his plans on Bisnow's State of Atlanta webinar last week, where he was joined by Landmark Properties CEO Wes Rogers and Newmark Knight Frank Executive Vice President Sean Moynihan.

Star Metals is a three-building, mixed-use project off 11th Street in the hot West Midtown submarket. Along with the 160-room boutique hotel, it is slated to include a 227K SF office building and a 409-unit apartment complex. The project also is slated to include 60K SF of street-level retail.

The office building and the apartments are well underway, and Allen Morris has preleased two floors to IWG's Spaces coworking brand and 10K SF of retail to Social Entertainment Ventures. SEV operates a chain of activity-based restaurants such as AceBounce, which is focused on pingpong and PuttShack that has mini-golf.

Florida-based Allen Morris Co., which recently formed a partnership with Stormont Hospitality Group to buy and develop hotels in the Southeast, is also developing the 12-story boutique hotel in MetLife's mixed-use project called Midtown Union. The office tower at Midtown Union is slated to be anchored by Invesco.

Despite the numerous hiccups that the pandemic has caused construction projects across the U.S., construction on all three projects is continuing “with very little delays,” Morris said during the webinar.

Construction project cancellation and delays are spreading across the country. Twenty-seven percent of construction companies have had to lay off or furlough workers, according to the most recent Associated General Contractors of America survey. Of those surveyed, 55% have reported projects either being postponed or canceled in light of the pandemic and worsening economic conditions.

Morris said the biggest challenge for his firm's construction projects is logistics: how to have workers in close proximity doing interior jobs.

“You can't install elevator cabs and have two workers in elevator cabs and be 6 feet apart,” he said.

Aside from mandatory masks and gloves, Morris said all contractors and subcontractors on the construction sites are screened each day by taking their temperatures.

Landmark Properties is among the many developers with projects on hold in markets where shelter-in-place orders were issued and residential construction was deemed nonessential. Those included student housing projects in Washington state and Pennsylvania, Rogers said. The developer also has delayed the start of a couple of student housing projects until next year, Rogers said, as he anticipates a slightly longer economic recovery runway than an immediate bounce back.

“We haven't killed any deals yet,” he said.

Rogers said the market-rate student housing industry is likely to experience less uncertainty in rental payments than the mainstream apartment market. In March, the company collected more than 99% of its rents on its 38,000-bed portfolio, he said. And 77% of its portfolio already is preleased for the next school year.

“We have seen a mild slowdown in certain markets, but in general, the vast majority of kids are coming back to school in the fall, and they're signing leases for that,” he said.

Morris also is developing a 409-unit student housing project in Orlando, servicing students at the University of Central Florida and Valencia College. But leasing just launched at that project this month, so it may be too early to tell if concerns about a delayed start to the next school year will impact leasing, Morris said.

“We're not sure what we're going to see happen,” he said. "It's unfolding as we speak."