Analysts Raise Red Flags Over Fort Worth's Dueling Hotel Plans

In a 24-hour period, Hammons, well known for his savvy strategies, announced plans to build a 300-room Embassy Suites within walking distance of the Fort Worth Convention Center and city council endorsed $50 million of backing for a $90-million, 600-room plan by Omni Hotels Inc. of Irving. Hammons, rejected earlier in the game for the city's quest to get a convention center hotel, went public with plans to buy a key two-acre corner at Lancaster Avenue and Main Street--catching insiders off guard and sparking advice from hotel analysts for the city to rethink its plan.

According to a local newspaper, Hammons intends to break ground in first quarter 2005 and deliver rooms by mid-2006. If plans proceed without a hitch, the Omni project won't be ready to go until November 2007. Scott Tarwater, senior vice president for Hammons Hotels & Resorts, didn't return telephone calls by publication time for comment on a corporate-issued press release about the proposal.

"We've got a deal that we think is good for the city and good for Omni as well," Scott Johnson, Omni's vice president of development and acquisition, tells GlobeSt.com. "We think there's room for both of us. We were surprised at the timing, but it validates what we've seen in Fort Worth." He says there's no intention at this time to rethink the room count because the noted Springfield, MO-based Hammons Hotels & Resorts Inc. is planning to buy land just 950 feet from the convention center's door.

City leaders also believe there is ample room for the developers to play on the same street. "I see John Q. Hammons' project as very complementary to the Omni project," Kirk Slaughter, the city's public events director, says, noting he and others were unaware of Hammons' plan. "John Q. sees something. If there's going to be a 600-room hotel at the convention center, he sees potential as well."

Jason Thiel, director of the Fort Worth Downtown Alliance, agrees with Slaughter that there is room for both projects because one is limited service and the other is full service and directly connected to the convention center. "If they weren't convinced that the market wasn't there, they weren't going to make the investment," he says of the head-to-head competition for convention goers' dollars.

While the locals say there's room for both in the convention center's shadow, hotel analysts say Hammons' plan spells doom for the city-funded convention center hotel. Not only is Hammons moving forward with private capital, but he's bringing a limited service brand with convention center appeal and viewed as the best of its type to compete against Omni.

"If he comes and does it, they (city leaders) should kill their plan," Bruce Walker, president of Source Strategies Inc. in Austin, says. "People who may think that they don't compete with each other know absolutely nothing about the hotel industry. Embassy is a very, very good product and it will absolutely tear into any direct business of the Omni."

Greg Crown, the Dallas head for San Francisco-based PKF Consulting Inc., says city officials should be concerned about the size of the Omni hotel with Hammons perched on the horizon. "On non-convention days, it will be challenging," he says, noting the existing uphill fight among Downtown hoteliers to maintain occupancy and room rates. "Any prudent operator is going to take a step back and re-examine their assumptions when there is new information on the table. They may conclude it means nothing for what they are going to do ... but it's not obvious to me that Fort Worth can sustain successful properties with these two big developments."

Walker says Fort Worth's Downtown room revenues dropped 2.4% in the past year "in spite of a new convention center." Rooms run from $20 per night at the 434-room Ramada Plaza, also near the convention center and under contract to be sold and renovated, to $101 at the Worthington across town. The Downtown room count represents nearly one-third of Fort Worth's market--10,672 rooms with an average room rate of $50 per night. In contrast, the 1,511-room Gaylord Texan in nearby Grapevine had a 60% occupancy and an $84.24 per day rate in the first three operating months.

Walker says the Embassy won't have room service, but its other amenities strongly appeal to convention goers. Besides, he's quick to point out, "full-service hotels are almost an obsolete product. The consumer doesn't want to buy it. The only thing they're getting is the right to have breakfast delivered." In the last 15 years, nine out of every 10 hotels built were limited service and the gap is narrowing, according to Walker.

Meanwhile, Internet surfing by convention and trade show organizers is producing lower rates at hotels within walking distance and cutting into past practice of booking hotel blocks with the host facility. Walker says the Embassy will be able to offer rooms within walking distance in the $95 to $110 per day range versus an estimated $200 per day projected for the Omni. "They're dead," he says of a full-service plan for Fort Worth's convention center. "They were dead before this, but this will kill them. John Q. Hammons is kind of the king of the small metro. He's so savvy that he knows he can build that for $95 to $110 per room and compete. There's your new convention center hotel. A convention is a party and what's the party hotel, the Embassy."

Walker was hired by Dallas-based Remington Hotel Corp. to pull together numbers to build a 600-room Hilton beside the convention center. The return, he says, was a negative 3% over the life of the investment based on a $217 per day rate. "With an Embassy next to it, it would be worse," he assesses.

Slaughter, in turn, cites a CH Johnson Consulting report that says Fort Worth could support another 1,200 rooms in its Downtown market. He's also holding a letter from the International Electrical Engineers after a June convention. "The only complaints that we received from our exhibitors and attendees were related to the inadequate facilities and poor performance of the hotels," wrote exhibition manager Harlan Howe Jr. "If the city expects to attract repeat convention business, steps must be taken to add a significant number of new Downtown hotel rooms and to upgrade the quality of the existing hotels. ... We had more than 800 people in the distant hotels so you will need more than that. ... I personally would like to return, however, we would have a hard time selling it to our exhibitors without an improvement in the hotel situation."

Crown points out that there's still time for Fort Worth to alter the 600-room plan with Omni. The dueling projects, he says, " is certainly going to be a challenge with the market in Downtown Fort Worth."