Iowa City, Coralville have hotel room boom in their future

IOWA CITY — From the rooftop bar of the new Hilton Garden Inn, it's easy to see why some are spooked by this metro's boom in hotel development.

The bar, aptly named 'Vue,' peers over downtown Iowa City and the University of Iowa. It's also just blocks away from competing hotels: a Sheraton and the hotelVetro to the northeast, an under-construction Hyatt Place to the southeast, and right next door, the soon-to-be site of an Element by Westin extended stay hotel.

At least nine new hotels and roughly 1,000 rooms are planned to open in the Iowa City-Coralville area within the next two to three years, data from the Iowa City/Coralville Area Convention and Visitors Bureau shows. Those counts include the new 143-room Hilton, which opened Thursday, and the 91-room Element, for which ground has yet to be broken.

Another three hotels have been proposed or discussed for the area.

'I've never seen anything like this. There's been a year or two where we have two, maybe at most three hotels opening, but nothing of this level of development,' said Josh Schamberger, president of the CVB.

For Schamberger, the developments have raised worries of whether the local market can sustain the growth.

While more rooms can be a boon for consumers, the metro has little in the way of new 'demand generators' — the events, venues and establishments that draw people to town for multiple days. The Iowa Arena, a $70 million venue in Iowa River Landing with seating for 6,000, is the next big one for the area, but workers still are clearing the land for the project.

Once the nine hotels come online, they will represent about a 35 percent increase in the number of hotel rooms available in the Iowa City metro. The market, however, has seen almost no growth in its hotel occupancy rates the last 12 months, compared to between 2 percent and 4.6 percent growth in years past. Year-to-date occupancy rates in 2017 have fallen slightly, according to data provided by the Iowa City-Coralville CVB.

A 'RATE WAR'

Schamberger worries about a 'rate war' breaking out as new hotels open. If demand doesn't keep up with all the new rooms, hotels may have to lower prices.

Decreased rates would be good for customers, but could mean cities take a hit in revenue from hotel/motel tax collections, Schamberger said. Those collections are funneled to city services and the CVB.

'With a rate war, that's a great thing for the customers, there's no doubt about it, but it can take years to get back a market average daily rate and there's a lot of organizations that are beneficiaries of hotel/motel tax collections,' Schamberger said.

Since the hotels themselves don't drive demand for rooms, there's no guarantee that more rooms on the market will mean more tax revenue, he said.

Cedar Rapids, Coralville, Hiawatha, Iowa City, Marion and North Liberty all collect hotel/motel taxes.

In the 2017 fiscal year, those tax collections generated more than $3.7 million for Cedar Rapids, more than $2.9 million for Coralville and more than $1.1 million for Iowa City, according to Iowa Department of Revenue data.

Those taxes make up about 14 percent of Coralville's general fund. In Iowa City, they are about 1.7 percent, but hotel/motel tax revenues are distributed to the Convention and Visitor's Bureau, the city's police patrol and its parks and recreation department.

'I don't think it's a 'the sky is falling' moment by any stretch, but I do think that for the next several years with this inventory coming in, those collections are going to be flat or possibly dip until the market sorts itself out,' Schamberger said.

'Trickle-down effect'

Older hotels may also need to invest in additional services or renovations to compete. The metro has seen older hotels close in the past as new ones enter.

'It has a trickle-down effect to some of the little bit older properties,' said Neal Roth, general manager of the Hilton Garden Inn.

Not every hotel may lower rates, said Matt Traetow, director of operations for hotel management company Serve 20:28. Newer hotels could keep higher prices if customers are willing to pay more for up-to-date establishments. Those newer hotels also need to turn a profit.

'You could see a decrease in the overall (average rate) in the market or you could see it flat, because, quite honestly, these new hotels, in order for them to survive, they do need to get stronger rates than some of their competitors,' said Traetow, whose company manages multiple Coralville hotels.

'bullish on the area'

Hotel developers and general managers say they're building now for a few reasons. Interest rates are low, the metro's population is growing and, they say, the area has been underserved for years.

Even with nine new hotels, they remain optimistic.

'Here in the Iowa City, Coralville, Cedar Rapids area, we firmly believe that we do have the amount of demand generators that are needed to qualify for these new rooms. We're pretty bullish on the area in general,' said Raj Patel, chief development officer for Hawkeye Hotels.

Roth said his hew Hilton hotel can compete because it will be 'full-service,' have two dining options and space for weddings or corporate events.

'Our hotel, we think the rooftop ... and ... meeting room space will drive some additional sleeping room sales,' he said.

The new developments come among other changes for the metro's hotel industry.

In May, Illinois-based AJ Capital Partners bought the 234-room Iowa City Sheraton Hotel and the 56-room hotelVetro, both downtown. Graduate Hotels, a division of AJ Capital, will renovate the Sheraton into a boutique-style hotel called Graduate Iowa City.

Hawkeye Hotels, the Iowa-based hotel construction and management company, recently moved its headquarters to a new building in Coralville, one that is adjacent to multiple hotels.

University Heights residents will vote this November on whether the city should implement a new 7 percent hotel/motel tax. The University Heights City Council also has debated whether to approve a 140-room Courtyard by Marriott. Meanwhile, the University of Iowa has sought proposals for a University Heights development that could include a hotel.

Schamberger said he's comforted that many of the new hotels will come from local operators who know the market.

Patel, Roth and Traetow did acknowledge the growth will likely create some waves.

'Obviously, when you build so many of them in such a short amount of time, there's going to be an adjustment period. That's reality. That's the world that we live in,' Traetow said.

Patel said he hopes developers of future hotels look at the market not as it is now, but as it will be, with almost 1,000 new rooms up for rent.

'Within two, three years time, those metrics are bound to come down and we won't be able to see the same amount of growth,' Patel said.

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What about Linn County?

The northern side of the Corridor also will see some new hotel activity.

An 82-room Tru by Hilton is under construction at Westdale Mall in Cedar Rapids and is expected to be finished later this year. Construction of a 72-room Comfort Inn also has started off America Drive near The Eastern Iowa Airport in Cedar Rapids.

Kinseth Hospitality announced Wednesday it would construct an 88-room TownPlace Suites by Marriott at 2873 Seventh Ave. in Marion. The city has discussed with developers the potential for a hotel at that location for years.

'This will be a signature project in the redevelopment of Marion's former railroad corridor,' Marion City Manager Lon Pluckhahn said in a news release.

At least one other hotel has been proposed for Cedar Rapids, but plans are not yet finalized. One Park Place, the 28-story tower proposed for downtown, would include a hotel, but the developer faces a November deadline to present its proof of financing to city officials.

Aaron McCreight, CEO of GO Cedar Rapids, said the area has seen healthy growth in hotel occupancy in recent years.

'If we were to put 1,000 more hotel rooms in this city overnight, so to speak, without the demand, I think that would be tough on a lot of our existing hotels. We're in a good place right now,' he said.

One negative, he said, is a lack of more hotels in downtown Cedar Rapids that could support the DoubleTree convention center.

'We need some more rooms downtown. I've made no bones about it,' he said.

McCreight said the Cedar Rapids metro could see more hotel development once Prospect Meadows, a 17-field baseball and softball complex, is underway northeast of Marion.

'We remain very hopeful that we will be moving dirt still later this fall' on Prospect Meadows, said McCreight, who is on the board for the project.

l Comments: (319) 398-8366; matthew.patane@thegazette.com

The new hotels

Here is a look closer look at the nine hotels recently opened or expected to open in Iowa City and Coralville. These 1,004 rooms would be added to a current stock of more than 2,600 rooms.

— Home2Suites, Coralville. 102 rooms. Opened September 2017.

— Hilton Garden Inn, Iowa City. 143 rooms. Opened October 2017.

— Fairfield Inn & Suites, Coralville. 95 rooms. Expected to open October 2017.

— Springhill Suites, Coralville. 102 rooms. Expected to open October 2017.

— Hyatt Place, Iowa City. 151 rooms. Expected to open August 2018.

— Drury Inn, Coralville. 180 rooms. Expected to open early 2019.

— Chauncey Tower hotel, Iowa City. 35 rooms, Expected to open early 2019.

— Staybridge Suites, Coralville. 105 rooms. Expected to open June 2019.

— Element by Westin, Iowa City. 91 rooms. Open date to be determined.

Source: Iowa City/Coralville Convention & Visitors Bureau; Gazette archives; hotel companies.