Expectations high for convention hotel revenue per available room

December 11, 2011

Business

In its first year of operation, a convention center hotel in Jackson would achieve a revenue-per-available room rate more than double the current rate for Jackson’s downtown hotel market.

That’s the ambitious projection of a market feasibility study done for potential hotel development partner Transcontinental Realty Inc. of Dallas and on which city officials appear ready to rely in assessing the market potential of a proposed 304-room convention headquarters hotel.

Revenue per available room, or rev-par, is a yardstick of total rooms revenue divided by total rooms available for rent. In this measurement, keeping rooms filled is key, as vacant rooms bring down the total.

City officials are relying on a revenue per available room projection of $90 in the hotel’s first year and a rev-par of $133 in the 10th year. Those revenue assumptions are the basis for a projected stabilized debt service of about $6 million, leaving cash flow after debt service of about $1.5 million, according to a study done by hospitality market consultants PFK on behalf of TCI Realty, a real estate investment trust that has been negotiating a development and financing plan with Mayor Harvey Johnson for several months.

It’s unclear just how far away the $90 rev-par projection is from what comparable hotels in Jackson are achieving in rev-par. Individual hotels typically keep such numbers to themselves. When they do share them, it is with hospitality research firms such as PFK or Smith Travel Research in determining averages for similar properties in their markets or for determining overall market averages.

But downtown Jackson’s hotels have not come close to a $90 rev-par, even in 2005 when hurricane Katrina swelled demand for hotel lodging. In that year, downtown rev-par climbed to $63.51 in September and reached a high of $65.15 in October, ending the year with an average of $43.35 – the highest average of the last six years, according to Smith Travel Research.

In October of this year, downtown Jackson’s market achieved a rev-par of $38.27, showing a low for the year of $29.58 in January and a high of $38.81 in June, Smith Travel reports

In most every instance, the downtown rev-par through October fell below the market-wide average for Jackson. Through October, downtown Jackson’s hotels showed a rev-par of $35.54 while market-wide hotels showed rev-par of $38.14.

While the rev-par averages complied by Smith Travel appear to be far below the $90 projected for the Jackson convention hotel, the overall tallies do show steady increases for rev-par over the recession years of 2009 and 2010. In 2009, Jackson’s downtown rev-par fell to $35.51 from $42.14 at the end of 2008. In 2010, rev-par continued its slide, dropping to an average of $31.85 for the end year.

But the 2011 rebound mirrors a recovery nationwide in hotel occupancies and rates. The nation’s lodging sector ended 2010 with a rev-par of $56.44 and is forecast to reach $61.04 by the end of the year. Rev-par is projected to climb nationally to $64.77 in 2012, Smith Travel says.

For convention hotels, which include major metro markets, rev-par is climbing back after a sustained slump that began in 2009, when the average fell to $85.84 from $107.30 the year before. So far this year, rev-par for convention hotels nationwide has reached $98.70, a near $10 increase over the previous year’s average.

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