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Legacy 'Tapping The Brakes' On Downtown Canopy Hotel

Plans for a dual-branded Downtown Atlanta hotel, which could include Atlanta's first location for a hyperlocal Hilton boutique brand, are now on indefinite hold.

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Legacy Ventures' David Marvin tells us, just days before he's set to speak at our Atlanta Hotel Development Forum, plans for an $80M, 350-key dual-branded Hilton Worldwide Homewood Suites and Canopy at 311 Marietta St in the Luckie-Marietta District are being shelved.

“We have actually tapped the brakes on that project,” David says. “We're hopeful we'll be able to get financing...but our conclusion was that was just too far a stretch this year.”

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David says institutional equity has pulled back from development investment for CRE and tightened across the board—even for hotels, despite some rosy industry performance in the past year.

“Going forward, I think the headwinds to creating new supply are even stronger” due to tightening credit and spiraling development costs, he says. “I think the financial markets are more concerned about oversupply in the cycle than is warranted.”

Legacy did have an agreement with an unnamed lender to fund 311 Marietta, but that lender “had a change of heart” and decided to hold investing in any new projects. "We own the land and intend to revisit next year," he says.

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It seems to be dichotomous, given Atlanta's record hospitality performance last year. According to a December story in Lodging Magazine, both PKF Hotel Research and CBRE were projecting a 5.5% room rate increase this year, and an almost 6% increase next year across the US. That's despite an additional 132,000 new rooms underway.

According to a report from the Federal Reserve Bank of Atlanta, 155 new hotels are underway in Georgia, and Lodging Econometrics (here, printed in the Fed report) show 80 of those in Metro Atlanta, the seventh-most-prolific new hotel city in Q2 2016. And the National Association of Realtors 2016 Lending Trends Survey echoed the pullback from lending for CRE projects due in large part to increasing compliance costs as a result of financial regulations, which has hit banks especially.

“With higher costs of compliance and higher capital reserve requirements for CRE loans, regional and community banks have been more cautious in their lending,” the report states. Other factors for the pullback include regulatory and economic uncertainty and dropping net operating income and property values, according to the report.

Peachtree Hotel Group's Mitul Patel—another of our panelists—says even his group is “definitely slowing the engines” on new developments, and instead is focused on buying and selling assets, most recently turning the former Holiday Inn at Centennial Olympic Park into an AC by Marriott, which will deliver next spring.

“On a macros basis, I think we'll see demand pull back” in 2017, Mitul says, adding some markets may still expand with increasing demand. He says his firm is tracking a general economic slowdown on room rentals, albeit slightly. But it's enough so he feels the hospitality's record performance has topped out. “Once you start plateauing on your RevPAR growth graph, the next logical assumption is it's going down.

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Still, not all is sour. Legacy Ventures finished renovating 321 rooms at the all-suites Embassy Suites by Hilton in Downtown Atlanta last quarter, part of an overall $9M renovation project. David says the impact on the hotel's RevPAR was noticeable: an almost $20/night increase, which is 16% more than it saw last year. And David says the firm is still pursuing other smaller sized projects in Atlanta. "We continue to see development opportunities on a rifle-shot basis, if costs can be managed."

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Hear more from Mitul and David, along with InterContinental Hotel Group's Even Hotels' Adam Glickman, Noble Investment Group's Ben Brunt, HVMG's Mary Beth Cutshall (on left) and Paramount Hospitality Management's Nick Lakha at our Atlanta Hotel Development Forum 7:30am, Tuesday, Nov. 15, at The Gallery at 1 Galleria Parkway in Atlanta. Register here.