PHILADELPHIA: Smart City. Smart Choice for Hotel Investment. 2013

Transcription

1 PHILADELPHIA: Smart City. Smart Choice for Hotel Investment. 2013

2 PHILADELPHIA HOTEL DEVELOPMENT 2013 TABLE OF CONTENTS I. Philadelphia as a Premier Travel Destination II. Philadelphia Lodging Market Statistics III. Hotel Development IV. New and Existing Hotels Map PIDC Contact: Anne Bovaird Nevins anevins@pidc-pa.org Cover photos by: Hotel Palomar, Loews Center City and PCVB

3 I. PHILADELPHIA AS A PREMIER TRAVEL DESTINATION As one of the premier destinations in the United States for convention, leisure, group, and business travelers from across the country and around the globe, Philadelphia is a smart choice for hotel development and investment. Located at the crossroads of the Northeast and the Mid-Atlantic states, Philadelphia is highly accessible by car, train, or plane. Philadelphia is within a five-hour drive of one-quarter of the U.S. population and within a day s drive for 40 percent of the U.S. population. Philadelphia s 30th Street Station, the third busiest rail station in the country, is located at the center of Amtrak s Northeast Corridor rail lines, and offers direct connection to transit to Center City every six minutes. Travelers can access Philadelphia from both New York City and Washington, DC in 100 minutes or less, door-to-door. More than thirty million passengers per year travel through Philadelphia International Airport (PHL), which is served by 30 airlines with 600 daily flights to 120 domestic and international cities. PHL serves as the international gateway for US Airways, which recently announced a merger with American Airlines to create the world s largest air carrier. Additionally, PHL recently announced $734 million in capital investments including a major runway expansion providing the capability to accommodate large, longhaul aircraft flying to any point on the globe. The Pennsylvania Convention Center (PCC), located within walking distance of all of Center City Philadelphia s attractions, restaurants and retail, is an important economic engine for hospitality in the city. The PCC is host to more than one million visitors a year, many of whom are exposed to Philadelphia for the first time through this experience. In the past, many convention groups outgrew the former PCC. A $786 million expansion, which opened in March 2011, increased the size of the PCC by 62%. The PCC now offers the largest contiguous exhibit space in the Northeast 528,000 square feet and a total of 1,000,000 square feet of saleable space. With an expanded facility, Philadelphia is now able to bring back those events that outgrew the building, as well as to host mega trade shows or two large events simultaneously. Over the past two decades, Philadelphia has become a notable domestic and international leisure destination, as evidenced by the fact that Center City hotel demand increased 118% from 1993 to Visitors to Philadelphia find a vibrant Center City, which has the third largest residential downtown population in the United States, behind only New York and Chicago. Center City and neighboring University City are home to the Pennsylvania Convention Center and more than 11,000 hotel rooms, as well as world-class cultural attractions, retail, restaurants and outdoor cafes, and some of America s most important historic destinations. The downtown s safe, clean and walkable streets, organized in a grid pattern, make Philadelphia easy to navigate. Visitors are also drawn to Philadelphia by a mix of iconic historic and cultural attractions, complemented by the energy of a thriving dining and arts scene. During that time, the City has invested in improvements to the Avenue of the Arts (home of the Kimmel Center for the Performing Arts), Independence Mall (home of the Liberty Bell, Independence Hall, and the National Constitution Center), and the Benjamin Franklin Parkway (home of the Philadelphia Museum of Art and Barnes Foundation). All of this is supported by the City and its partners through strategic marketing and sales to the tourist and convention sectors, both domestic and international. 1

4 In addition to the PCC expansion, significant investments have been made to enhance key cultural and commercial centers over the past two decades, increasing Philadelphia s draw as a travel destination. Avenue of the Arts: One of the first upgrades to the city s downtown came in 1993 with the creation of the Avenue of the Arts, Inc. to promote South Broad Street as the city s performing arts hub for theater, music, dance and higher arts education. Over the years, South Broad Street has welcomed new and renewed venues including: the Clef Club of the Performing Arts (1995), The Wilma Theater (1996), Arts Bank (1996), Prince Music Theater (1999), Kimmel Center for the Performing Arts (2001) and the Suzanne Roberts Theatre (2007). A host of restaurants, bars, and hotels also fill the Avenue of the Arts and its environs. This activity along the Avenue has filtered onto North Broad Street, which includes the Northwest entrance to the expanded Convention Center, and has seen an influx of restaurant, cultural and residential development, such as the Pennsylvania Academy of Fine Arts. Historic Philadelphia: In 2001, the Independence Visitor Center opened at 6 th and Markets Streets, locating the city s visitor services for the first time in the heart of its Independence National Historical Park. The opening of the Visitor Center served as the starting point for major enhancements of the area that took place over more than a decade. The $400-million-plus transformation project saw the move of the Liberty Bell in 2003 to a brand new interpretive center next door, along with several new major attractions and programs on Independence Mall: the National Constitution Center (2003), Once Upon A Nation s interpretive programming (2005), Franklin Square (2006), the National Museum of American Jewish History Museum (2010), The President s House (2010), the Philadelphia History Museum at the Atwater Kent (2012) and Benjamin Franklin Life and Legacy Museum (2013). After a decade of transformation, the historic area and its first-rate facilities are ready to welcome and orient visitors. Benjamin Franklin Parkway: The city s latest tourism success story focuses on the Benjamin Franklin Parkway, a mile-long stretch running from City Hall to the Philadelphia Museum of Art that has long been the nexus of the city s acclaimed art offerings. A major public investment when it opened in 1929, the Parkway still serves as a central public space and a home to key tourist attractions such as the Philadelphia Museum of Art, the Rodin Museum (renovated in 2012), The Franklin Institute, the Academy of Natural Sciences at Drexel University, Swann Memorial Fountain, Cathedral Basilica of Saints Peter and Paul and various works of public art. In recent years, the Parkway has welcomed the Ruth and Raymond G. Perelman Building (2007), housing the Art Museum s costume and textile collections; Sister Cities Park (2012), complete with a children s garden, boat pond, fountain and café; and most notably, the Barnes Foundation (2012), site of Albert Barnes renowned art collection, valued at an estimated $25 billion. The Comcast Center, home to the global headquarters of Comcast Corporation, opened in 2008 and upon certification was the tallest LEED-certified building in the nation. Comcast recently completed a merger with NBC Universal making Comcast the nation s largest media corporation. Pennsylvania Convention Center President s House 2

5 In addition, there are many cultural, tourism, and corporate developments currently underway, which will continue to draw leisure, convention, and business travelers to Philadelphia for years to come. Dilworth Plaza: Opening in 2014 after its $50 million renovation. The transformation will include a lawn, a fountain that will double as an ice skating rink, a café and glass pavilions to illuminate the subway stop below. Museum of the American Revolution: Opening in 2016 at 3 rd and Chestnut Streets as the nation s first museum dedicated to telling the entire story of the American Revolution. Casinos and Gaming: The Pennsylvania Gaming Control Board is currently considering bids for a second gaming license within the city of Philadelphia. In addition, a significant expansion is planned for Philadelphia s first casino, SugarHouse, which opened on the Delaware River waterfront in 2010 with a mix of gaming, including slots and table games and dining options. The Pennsylvania casino market surpassed Atlantic City in total gaming revenue in 2012, bringing in more than $3.1 billion. Media coverage also reflects the growing buzz about Philadelphia. Major features in big-name publications highlight Philly s food, art, history and shopping all year long, and Philadelphia has been featured on a number of best of and top lists. A sampling from 2012 and early 2013 includes: The opening of The Barnes Foundation on the Benjamin Franklin Parkway was met with rave reviews for the museum and the city, with Travel & Leisure calling it a game changer for Philadelphia, at a moment of splendid cultural renaissance and The Wall Street Journal noting that with acclaimed restaurants, miles of green space and a brand new home for the Barnes collection, there is a lot to love. Philadelphia nabbed the #4 spot on Lonely Planet s Top 10 US travel destinations for The description focused on Philly s arts and culture. Business Insider included Philadelphia in its list of the 13 Places You Need To Visit In 2013 because of its arts. Travel Channel: The Traveling Type blog named Philadelphia the Next Great Art Destination Travel + Leisure America s Favorite Cities ranked Philadelphia: #1 sports-crazed, #2 historical sites & monuments, #4 cultural getaway, #4 pizza, #5 street food, #5 museums & galleries, #5 sports bars. Smarter Travel included Philadelphia in its list of 10 of America s Best Cities on the Rise, calling out the region s record number of travelers in 2011 and the Barnes Foundation opening on the Parkway. GQ magazine included Philadelphia as one of The 5 Best Beer Cities in America. U.S. News & World Report named Philadelphia the #3 Best US Historic Destination Esquire magazine named Philadelphia The Late Night Capital of the United States for its late night food scene. Philly s food scene also received multi-page spreads in Saveur, Bon Appetit and Travel & Leisure. 3

6 II. PHILADELPHIA LODGING MARKET STATISTICS The following is statistical data compiled by PKF Consulting which describes the historical performance of the lodging market in Center City and University City Philadelphia. Center City / University City Lodging Market Historical Performance The following tables were prepared by PKF Consulting - Philadelphia, in conjunction with the Greater Philadelphia Hotel Association, the Greater Philadelphia Tourism Marketing Corporation and the Philadelphia Convention & Visitors Bureau and based on data from Smith Travel Research and/or contributed by the hotels themselves. These tables constitute dynamic tools for understanding the health and make-up of the Center City and University City hospitality industry from 1993 through As shown below, both hotel supply and hotel demand have increased steadily throughout this period since the opening of the Pennsylvania Convention Center in 1993 and the advent of a new domestic tourism marketing effort in The compound annual growth rate for hotel demand has been more than 4% in this period, and RevPar in the market has increased at approximately the same pace. CENTER-CITY PHILADELPHIA LODGING MARKET HISTORICAL PERFORMANCE 1993 THROUGH 2012 Year Daily Annual Change Hotel Demand Annual Change Average Rate Amount Change RevPAR Amount Change ,613 2,048, % 1,331, % 65.0% $ % $ % ,548 2,025, ,357, ,565 2,396, ,641, ,677 2,443, ,782, ,513 2,445, ,794, ,728 2,455, ,756, ,869 2,872, ,957, ,805 3,588, ,282, ,654 3,888, ,340, ,690 3,901, ,575, ,605 3,870, ,569, ,428 3,816, ,702, ,244 3,739, ,712, ,840 3,591, ,641, ,901 3,613, ,678, ,045 3,676, ,595, ,262 3,745, ,558, ,580 3,861, ,752, ,586 3,863, ,773, ,813 3,957, ,903, CAG: Hotel Supply Occupancy 93-'12 3.5% 4.2% 3.3% 3.9% Source: PKF Consulting 4

7 Geographic Sub-Market Performance: The following comments relate to the three geographic sub-markets: The Old City/Society Hill area: those hotels most popular with the domestic and international tourist segment, which produces visits all year round with especially high volume from April through October; The Broad Street and East area: those hotels closest to the Convention Center; The West of Broad Street area: these hotels, including those in University City, benefit from the concentration of Class A office space along West Market Street and the academic and health-care institutions in University City. Due to its proximity to Rittenhouse Square and the Parkway, this area also draws a healthy mix of leisure (domestic and international) and group travelers. The West of Broad Street sub-market reported the highest average room rate in 2012, as it has historically. The table on the next page lists the major hotels in Center City and University City, classified by general geographic location, with estimated sector occupancy and average room rate levels for The differences between the areas closely follow recent historical trends. Loews Center City Omni Hotel at Independence Park Hotel Palomar 5

8 CENTER- CITY PHILADELPHIA LODGING SUPPLY GEOGRAPHIC SECTOR ESTIMATES FOR 2012 Area/Hotel Average Rooms Available in 2012 Occupancy Average Room Rate West of Broad Street (incl. University City): 4, % $177 Sheraton Center City Philadelphia 757 Crowne Plaza/Sonesta 445 Four Seasons 364 Sheraton University City 332 Sofitel 306 Radisson Plaza Warwick 301 Westin 294 Embassy Suites 288 Hilton Inn at Penn 243 Palomar Le Meridien Best Western Center City 183 Latham 139 Windsor Suites 119 Rittenhouse 111 AKA Rittenhouse 78 Penn Tower 50 Broad Street & East: 4, % $166 Marriott 1,408 Loews 581 Courtyard by Marriott 498 Doubletree 433 Ritz-Carlton 300 Hilton Garden Inn 279 Residence Inn 269 Hampton Inn 250 Hyatt at the Bellevue 172 Holiday Inn Express 168 Four Points by Sheraton 92 Inn at the Union League 84 Travelodge 50 Alexander Inn 48 Rodeway Inn 37 The Independent Philadelphia 24 Old City/Society Hill: 1, % $149 Sheraton Society Hill 364 Holiday Inn Historic District 364 Hyatt Penns Landing 348 Comfort Inn Historic Area 185 Omni at Independence Park 150 Penn s View Inn 51 Best Western Independence Park 36 Sources: Hotels concerned; PKF Consulting. 6

9 Overall demand in Center City and University City may be categorized into four segments: Commercial Individual: Individual travelers for business purposes, typically paying comparatively higher room rates and utilizing hotels Monday through Thursday. Individual government travelers are included in this much larger segment in the chart below. Convention & Group: Convention business related to the Pennsylvania Convention Center and groups of 10 or more including business meeting attendees; social groups (weddings, reunions, bar and bat mitzvahs, etc.) Room rates tend to be discounted somewhat for group business. Leisure Individual: Individual travelers for leisure purposes, which has been the fastestgrowing market segment for Center City hotels and experienced a tripling of room nights since Airline Crew: Crews sold via contracts with the airlines. The following table indicates the estimated market mixes for the Center City and University City market from 1993 through Every major segment of the lodging market commercial, convention, group and leisure has experienced significant growth during this period. Year Commercial Demand (Includes Government) Convention & Group Demand Leisure Demand Amount Charge Amount Charge Amount Change Airline Crew Demand Amount Change Total Demand Amount , % 535, % 283, % N.A N.A 1,332, , , , N.A N.A 1,358, , , , N.A N.A 1,642, , , ,000 N.A 105,000 N.A 1,783, , , , , % 1,794, , , , , ,756, , , , , ,958, , , , , ,282, , , , , ,340, , ,116, , , ,575, , , , , ,570, , ,035, , , ,703, , ,063, , , ,713, , ,049, , , ,642, , ,064, , , ,679, , , , , ,595, , , , , ,558, , , , , ,754, , , , , ,774, , ,045, , , ,903,000 CAG%'s: % 3.6% 5.7% N.A 4.2% Sources: Hotels concerned; Smith Travel Research; PKF Consulting. CENTER-CITY PHILADELPHIA LODGING MARKET HISTORICAL SEGMENT DEMAND LEVELS (ROUNDED) 1993 THROUGH

10 The following chart provides an overview of Center City and University City hotel demand by segment for 2012: The following table outlines the growth in overseas visitations to Philadelphia from 1997 through Philadelphia jumped from the 21 st most visited city (421,000 visits) in the United States in 2002 to the 12 th most visited city (613,000 visits) in *SOURCE: U.S. Department of Commerce, Office of Travel and Tourism Industries 8

11 The following table outlines the mix of convention and group demand, including the number of citywide conventions annually as well as the room nights sold or booked by the PHLCVB and Center City and University City hotels, from 1993 to CONVENTION AND GROUP DEMAND BY SEGMENT 1993 THROUGH 2012 Year Number of Cityw ides Convention-Center Related Demand % Chg. Demand % Chg. Demand % Chg. Demand % Chg ,000 N.A N.A N.A N.A 535, , % N.A N.A N.A N.A 552, % , N.A N.A N.A N.A 754, , , , , , , % 98, % 769, , , , , , , , , , , , , , , , , , , , ,116, , , , , , , , ,034, , , , ,068, , , , ,049, , , , ,064, , , , , , , , , , , , , , , , , , , , ,045, Sources: PCVB; hotels concerned; PKF Consulting Sold/Booked by the PCVB Non Convention-Center Related Sold/Booked by Center- City Hotels Total Convention & Group Demand Independence Hall DoubleTree Hotel: Avenue of the Arts Pennsylvania Convention Center 9

12 The following table provides attendance information for the Philadelphia Independence Visitor Center and Center City s major attractions for 2011 and ATTENDANCE LEVELS PARTICIPATING ATTRACTIONS ANNUAL 2011 AND 2012 Attendance Independence NHP/Attraction Change Independence National Historical Park, including: 3,572,770 3,594, % Independence Visitor Center 2,338,400 2,427, Liberty Bell Center 2,045,680 2,006, National Constitution Center 817, , Independence Hall 689, , Individual Attractions: Franklin Institute 845, , Academy of Natural Sciences 165, , Philadelphia Zoo 1,178,285 1,230, Please Touch Museum 574, , Philadelphia Museum of Art 635, , Penn Museum 211, , Eastern State Penitentiary 264, , Reading Terminal Market 6,350,706 6,425, Historic Philadelphia Center 104, , Betsy Ross House 205, , Franklin Square 766, , Christ Church and Burial Grounds 214, , Total Attractions (including INHP) 17,823,382 18,313, % 10

13 PHILADELPHIA: SMART CITY. SMART CHOICE FOR HOTEL INVESTMENT. III. HOTEL DEVELOPMENT Recent Hotel Development Philadelphia has seen a strong rebound in its hotel development market, driven by boutique hotels serving convention, leisure, business, and health care-related travelers. Since the start of the Pennsylvania Convention Center expansion project, there have been 930 new hotel rooms added to Philadelphia's downtown hotel market. An additional 246 rooms are currently under construction in Center City and University City, bringing the total to 1,175 new rooms completed or underway. In addition, the first-ever hotel at The Navy Yard is current under construction, reflecting the recent growth of that location as a dynamic, urban business campus. The completed new hotel development projects from 2008 to the present are: 230-room Kimpton Hotel Palomar at 17th & Sansom, 202-room Le Meridien at Broad & Arch, 92-room Four Points by Sheraton at 12th & Race, 136-room Homewood Suites University City at 41st and Walnut, and 270-room Kimpton Hotel Monaco at 5th & Chestnut. Currently under construction is: 246-room Hilton Home 2 Suites at 12th & Arch (completion Summer 2013), and 172-room Courtyard by Marriott at The Navy Yard (completion Fall 2013). Projected Hotel Development Center City hotels sold more rooms than ever in 2012, resulting in a bigger-than-ever impact: 2.9 million rooms and $488 million in revenue. Vitality in Philadelphia s convention, tourism, business and airport markets has allowed Center City Philadelphia hotels to achieve occupancy rates above 70% every year from 2004 through 2012, except in 2009 at the height of the impact of the recession. The average daily rate (ADR) reached a peak of $ in 2008, representing an increase of 23% since Rates declined from their 2008 peak due to the recession, but have seen a healthy recovery and 2012 saw an ADR increase of nearly 15% since 2010 with a rate of just over $168. In 2006, the Philadelphia Convention and Visitors Bureau (PHLCVB) worked with PKF Consulting to determine the likely amount of new hotel development that would support the expansion of the PCC and, at the same time, sustain occupancy of all downtown hotels. At that time, it was projected that an additional 2,000 to 2,500 hotel rooms would be developed in the downtown to serve the demand for the expanded convention center and the growing leisure tourism market. As described above, 1,175 new rooms will have been added to the market by 2013, bringing Philadelphia more than halfway to the projected increase of at least 2,000 new rooms. The City s current priorities for future hotel development are a 600 to 800 room convention headquarters hotel as well as one or two strategically located smaller projects serving the Center City marketplace. 11 Hotel Palomar Le Meridien Loews Center City Hotel Palomar

14 PHILADELPHIA: SMART CITY. SMART CHOICE FOR HOTEL INVESTMENT. Support for Hotel Development or Renovation/Expansion Projects The City of Philadelphia, the Commonwealth of Pennsylvania, and the Philadelphia Industrial Development Corporation (PIDC) offer a number of programs that are available to support projects in Philadelphia which will create jobs or meet sustainability goals, including hotel developments and hotel renovation/expansion projects. The following is an outline of programs which may be available subject to financial need, availability of funds, project readiness and underwriting criteria, except as noted: Subordinate Financing: HUD 108 Loan Program (PIDC) PIDC s HUD 108 loan program can provide financing in increments of $35,000 for each permanent, fulltime equivalent job created by a project, of which at least 51% will be for low to moderate income people, with a loan amount generally not to exceed $5,000,000. The HUD 108 loan program offers funds at a rate based on a spread over the 10 Year Treasury and currently estimated between 5% to 6%, fully amortizing over a maximum term of 20 years. The HUD 108 loan can be secured in a subordinate position to private senior debt, subject to a combined 80% loan-to-value ratio. Family income reporting for the permanent employees may be required depending on the location of the project. The interest rate and loan term are fixed at settlement based on market conditions. First Industries Tourism Machinery and Equipment Loan Fund (Commonwealth of PA) The First Industries Tourism program can provide low-cost financing for machinery and equipment purchases for hotel development or renovation projects which retain or create jobs in Pennsylvania and which are located in close proximity to a destination tourism site. Eligible equipment purchases for hotel projects would include computer reservation systems, kitchen appliances, and laundry appliances. One job must be retained or created for each $25,000 in financing, and the Commonwealth of Pennsylvania is currently accepting applications for a maximum of $500,000. Energy Efficiency Programs*: EnergyWorks Loan Fund (PIDC, The Reinvestment Fund) The City of Philadelphia, PIDC, and The Reinvestment Fund jointly offer the EnergyWorks Loan Fund to provide low-cost financing to support energy efficiency retrofits in Philadelphia. In order to be eligible for an EnergyWorks loan, the overall project or single measure must achieve at least a 25% energy savings. The interest rate for the EnergyWorks Loan Fund is approximately 3.5% and loan amounts range from $100,000 to $2,500,000. The loan proceeds must be used to finance energy efficiency measures and the loan must be fully secured. This program currently has limited availability of funds. Alternative and Clean Energy Program (Commonwealth of PA) The Commonwealth of Pennsylvania s Alternative and Clean Energy Program (ACE) provides financial assistance in the form of grant and loan funds for alternative and clean energy projects in the state, including the construction or renovation of energy efficient buildings (meeting LEED Gold standards), installation of energy conservation or energy efficiency equipment, or installation of a qualifying alternative energy system. Detailed guidelines are available at 12

15 PHILADELPHIA: SMART CITY. SMART CHOICE FOR HOTEL INVESTMENT. City of Philadelphia Green Roofs Tax Credit The City of Philadelphia offers a credit against the Business Privilege Tax of twenty-five percent (25%) of all costs incurred to construct a Green Roof, with a maximum credit of $100,000 per business. * Note that there are additional programs relating to energy efficiency and alternative energy generation that are available through PECO, PGW, and the federal government. Tax Abatement and Credit Programs: City of Philadelphia Real Estate Tax Abatement The City and School District of Philadelphia offer an abatement of incremental real estate taxes over ten years for new construction and substantial renovation projects. The abatement requires filing of an application within sixty (60) days from the date on which the building permit to construct is issued by the Department of Licenses and Inspections. City of Philadelphia Job Creation Tax Credit (JCTC) The City of Philadelphia can provide Job Creation Tax Credits, which are deducted against the company s Business Privilege Tax liability. For jobs created through the end of 2013, the JCTC can equal $5,000 per new job created. To qualify, the business must increase its workforce by 20% or greater or create at least 25 new jobs within a five year period. The jobs created must be full-time positions and pay at least 150% of minimum wage. Additional City Assistance: Developer Services (City of Philadelphia) The City of Philadelphia can convene a meeting of all major Philadelphia operating departments and utilities involved in the permitting and approval process to review and provide guidance to a proposed hotel development. Meetings are offered as a free service of the City. Workforce Training (Philadelphia Works, Inc.) PIDC and the City collaborate with the Philadelphia Works, Inc. (PWI) to provide support for new hospitality industry employees who are Philadelphia residents. The PWI can offer training grants as well as non-financial assistance for recruitment, assessment and employee retention. 13

16 PHILADELPHIA: SMART CITY. SMART CHOICE FOR HOTEL INVESTMENT. IV. NEW AND EXISTING HOTELS MAP A new generation of convention and tourist infrastructure and a vibrant hospitality market make investing in the development and renovation of hotels in Philadelphia a smart choice. The expansion of the Pennsylvania Convention Center, the relocation of the Barnes Foundation to the Benjamin Franklin Parkway, continued Omni Hotel at Independence Park retail and residential vitality concentrated around Rittenhouse Square, and recent investments in the historic Independence Mall area will continue to support a strong hospitality market in Philadelphia for years to come. Please see the following map of new and existing hotels in Center City Philadelphia. For more information, please contact: Anne Bovaird Nevins Senior Vice President, Marketing and Business Development PIDC Phone: anevins@pidc-pa.org 14

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