DC Hotels Are Rolling in Dough
There are at least 65 hotels in the pipeline in DC right now, everything from Trump’s conversion of the Old Post Office Pavilion into a luxury hotel to three different hotels at The Wharf. Hotel sales are breaking records. Welcome to DC hotel boom times.
By almost every metric, the DC hotel market is outpacing its average over the past 25 years. In April 2015, RevPAR in the region was $137.13, the highest of any month since at least 2009, according to Smith Travel Research. That's a 13.8% increase over 2014, a sign that hotel demand is surging. Occupancy in June was 82.3%, also the highest figure since at least 2009. All the while, supply has been flat: the DC region’s number of available rooms has increased by less than 1% in the first half of this year compared to 2014. “There’s very strong upward trajectory and upward momentum,” Jan Freitag, SVP of lodging insights at STR told Bisnow yesterday.
DC is benefiting from a strong national economy, Jan says. Leisure demand for hotels jumps when the housing and stock markets are doing well because “people feel richer.” But DC isn’t just keeping up with the national economy; it’s outpacing it. On the East Coast, DC is second to only Philadelphia in growth of occupancy and revenue so far this year through June. The government shutdown last year tanked the hotel industry here, which might have put the brakes on development briefly, but things sure have picked up since: about 10,000 rooms are either under construction or in planning right now, according to STR data provided to Bisnow. Almost 1,000 of those pipeline rooms are in luxury hotels, meaning DC’s stock of such rooms is expected to increase 14.4% over the next few years.
The most prominent hotel in the pipeline right now is Trump International Hotel, the conversion of the Old Post Office Pavilion. Trump SVP David Orowitz says the pent-up demand for luxury hotels—and his primetime location—is what drove the deal. “The macro market in DC is great,” he says, “but the micro market is also important. We’re really right in the core of where people want to stay now.” The $200M hotel is going to be “the most luxurious and high-end hotel in DC,” and there hasn’t been a new non-boutique luxury hotel in 15 years, he says. The hotel is still on track to open in the second half of 2016.
Another sign that the DC hotel market is booming? People are paying record prices for hotels. When Songy Highroads bought 1522 K St NW in 2013 and renovated it into a Hyatt Place hotel (above), the market was vastly different, COO and partner Todd Nocerini says. “We felt there was a shortage of rooms and good flags in DC,” Todd told us this morning. “Today, everyone is trying to find a building or a site for a hotel.” For some, that means making an aggressive investment play, which is how Songy sold its Hyatt Place three months after it opened for $68M, a record $415k per room for select-service hotels in DC. The hotel wasn’t on the market, but RLJ Housing Trust gave Songy an offer it couldn’t refuse. It helps that the Hyatt Place is right in the heart of the CBD. “It’s one of the best pieces of dirt I’ve seen in my career,” Todd says. Right now, the whole DC region is a great piece of dirt (and water), especially if you’re in the hotel business.
