According to the local hotel and lodging association, the area’s post-pandemic recovery is on track. How that recovery looks, however, is still open to interpretation. 

The Metropolitan Memphis Hotel & Lodging Association hosted its 20th annual Memphis Southern Lodging Summit Tuesday, Aug. 23, and Wednesday, Aug. 24, at the Renasant Convention Center. At the event, hotel and lodging professionals gathered to discuss industry trends and impacts both nationally and locally. 

“We’re looking at pent-up room demand,” senior managing director of CBRE Hotels Mark Woodworth said during an industry trends and forecast panel. But he also noted that, while demand has increased overall, the Downtown core and airport market hotels remain below pre-pandemic levels. 

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He attributed the trend, in part, to the continued decrease in business travel. 

“I think, going forward, leisure will dominate,” Mark Lomanno of Kalibri Labs said. 

According to a Kalibri Labs’ national report, hotel stays have increased since 2019, from 1.9 days then to just more than two days now. 

Part of that has been a significant increase in check-ins on Thursdays and Sundays, typically times when people travel for leisure. Food and beverage sales have also increased by almost 155%, according to the report. 

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Another piece of evidence that business travel is still down? In 2019, global distribution services accounted for 34% of hotel bookings. That number has dropped to 27%, which Lomanno accounts to corporations eliminating unnecessary business travel. 

What about inflation?

CBRE Hotels’ Woodworth does believe inflation will impact mid- and small-sized hotels, due to the socioeconomic impacts for middle-class families and the slower return on business travel. 

But where inflation has impacted the sector the most has been development. During an investment and development panel, Chance Carlisle of Carlisle Corp. compared the real cost of One Beale to what it would cost if construction began now. 

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When the 227-room Hyatt Centric was built in 2021, the cost was around $300 per room. If that same project started today, it would be between $400 to $415 per room, Carlisle estimated.

The recently built Caption by Hyatt would’ve increased by around $65 per room, he said. 

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“One of the things that will be interesting is: When things stabilize, where will it be at?” Carlisle asked, in regards to the financing and development bubble. 

While Carlisle believes the hospitality industry is on track to bounce back completely by 2024, he doesn’t believe the development and financing side will balance itself until 2026 or 2027. 

Can new hotels find financing? 

During a panel, moderator Lee Hunter of Hunter Hotel Advisors proposed several questions on the current lending situation. 

Hunter’s Atlanta-based real estate firm has closed $2.1 billion in hotel deals so far this year — with another $300 million under contract to close before the end of the year, he said. 

But what he’s seeing now is a reluctance for banks to take on more debt. 

“Wells Fargo is not investing in hotels for the rest of the year,” Hunter said. “Your hotel is not worth the same today as it was six months ago.” 

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Carlisle is navigating the finance challenge with the Grand Hyatt hotel. The 365-room hotel is the final piece of Carlisle Corp.’s One Beale development. Carlisle said the overall cost for the project has already increased from $190 million to $235 million.

The project had to look to the bond market as an alternative for financing and is seeking a financial backstop from the city. In July, the Memphis City Council approved the backstop; however, the deal remains in limbo as Mayor Jim Strickland said he will not sign off on the deal as it currently stands. 

During the panel, Carlisle remained optimistic about the Grand Hyatt’s progress and said he expects negotiations to finalize within the coming weeks and construction to begin on the Grand Hyatt in September. The hotel plans to open in 2024, he said. 

He added that Carlisle is looking at possibly building two more hotels in East Memphis. 

What about Memphis? 

According to a Pinkowski and Co. June 2022 report, the Memphis market has 58 hotels that are expected to open by 2025.

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Of those 58, eight are already under construction. The 2025 construction pipeline would bring more than 2,000 rooms to Downtown, including the last stage of the One Beale development. (The majority of the hotels in the pipeline are less than 300 rooms.)

“Memphis is kind of the select-service hotel king,” Carlisle said. 

He added that Memphis is still about 2,000 to 3,000 rooms below meeting its potential. The supply has not met the demand, he said. 

According to the Memphis Tourism 2021 annual report, Shelby County hotel demand was at 93% recovery compared to 2019. In comparison, the national demand index index was at 88%. 

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The average overnight stay for Shelby County visitors was 3.12, with 66% of visitors originating locally or regionally.