Greater Wilmington Business Journal, Feb. 15, 2013: As cranes give way to floors of poured concrete and pillars of steel at downtown Wilmington’s newest hotel chain, the bustle of activity may soon have neighboring company in the coming months.

After a tepid period of growth, parts of New Hanover County are experiencing a hotel explosion – giving rise to new rooms and optimism to many hospitality and tourism officials. 

Room boom

Downtown Wilmington remains the hub for future hotel development.

Alone, the central business district will boast 435 new rooms, which are either under construction or in various stages of permitting and review.

In all, the proposed hotels represent more than $70 million in private investment.

The Courtyard by Marriott, which is being built by Greensboro-based CN Hotels, is currently leading the wave of new hotel construction. The $14 million, 124-room hotel is under construction at the intersection of Second and Grace streets.

Officials with Wilmington-based USA InvestCo also are finalizing plans with city and county development officials for a $25 million Hotel Indigo.

Plans call for the 125-room, 10-story hotel to rise on a 1.27-acre block fronting Nutt, Hanover, Front and Brunswick streets not too far from the Wilmington Convention Center.

A. Kyle Myers, project manager overseeing the Hotel Indigo’s construction in the Northern Riverfront Marina and Hotel development, said officials were targeting a second quarter 2013 construction date.

But one of the largest hotel developments in the county could soon take place on an acre plot next to the Wilmington Convention Center.

Since February 2012, Wilmington city officials have been negotiating with Virginia Beach, Va.-based Harmony Hospitality to build an eight-story, 186-room Embassy Suites by the center.

Wilmington City Council members in January granted hotel officials an extension on its existing purchase and development agreement through April 30.

Brooks Johnson, director of development for Harmony Hospitality, said the extension was needed to raise additional capital for the $33 million project through an immigrant investment program known as EB-5 – where for a minimum of $500,000 invested, individual investors are fast-tracked green cards to move their families to the country.

“We filed our paperwork in June of 2012 for the EB-5 financing, and immigration told us it would take four to five months to set up the center,” Johnson said. “Now that’s been extended to nine months.”

Johnson said his firm hoped to break ground on the long-anticipated hotel by this summer.

Meanwhile, Carolina Beach also plans to add more rooms to its inventory.

Augusta, Ga.-based Blanchard and Calhoun Commercial plans to construct a 10-story, 108-room Hampton Inn & Suites Hotel north of the town’s boardwalk.

While the site has been cleared, company officials have not released a construction timeline for the hotel’s development.

Meeting demand

Greater Wilmington has a history of indulging itself when it comes to building too much of a good thing.

But do hotels fall in line with the booms and busts of the area’s housing and office market?

No, said Kip Damrow, director of sales for Arlington, Va.-based Interstate Hotels & Resorts. In fact, Damrow, who also manages the Hilton Garden Inn at Mayfaire and the Courtyard by Marriott in the Monks Corner area near Market Street and South College Road, believes Wilmington might not have enough rooms.

“In terms of the new construction downtown, it’s needed,” Damrow said. “There is demand because we have a convention center that is treading water because we do not have enough hotel rooms to support the space.”

Kim Hufham, president and CEO of Wilmington and Beaches Convention & Visitors Bureau, agreed, adding that some groups that would like to bring conventions to the city head for places like Myrtle Beach and Savannah, Ga. because Wilmington has no hotel next to its convention center.

“Some of the association requirements are hotels that are adjacent to the [convention] center,” Hufham said. “Until we have a hotel in place, we’re not going to book these groups to come into our area.”

Susan Eaton, general manager of the Wilmington Convention Center, said despite not having a hotel anchor at the convention center, the 3-year-old facility is still capturing business.

Since opening in November 2010, the convention center has hosted more than 300 events – averaging eight conventions a year since its inception. In all, Eaton estimates more than 186,000 attendants have traveled through the Wilmington Convention Center.

And even more could find their way through its lobbies, meeting rooms and expo halls – if the center had a hotel.

“The more [hotel] product we have will enable us to attract more business to the area,” Eaton said.

Some groups are already exploring the possibilities.

Patrice Willetts, president of the N.C. Association of Realtors and a Realtor with Wilmington-based Coastal Properties, said officials with the state group were eyeing the city for its next convention – if the proposed hotel is completed in time.

“We have a committee that is dedicated to those searches, and they have considered Wilmington as a convention city,” she said.

But while the region may be screaming for hotel rooms, its geography could be causing a number of outside hospitality firms to skip greater Wilmington.

“Our market is so segmented,” Damrow said. “A lot of developers look at Wilmington as one market, not downtown, midtown, Eastwood, Mayfaire or Wrightsville Beach … these are all totally different markets.”

Damrow added that because of the county’s geography, some hoteliers are having a tough time completing comparative research of the market for future growth, which at times makes it more difficult for some builders to receive financing for large-scale hotel construction.

“The rates downtown are and will continue to be substantially higher than those of the smaller hotels in midtown, Eastwood and to a lesser degree, the Mayfaire area,” he said. “The only hotel in the downtown comp set is Hilton Riverside. They need four or five additional hotels with like revenue numbers to get the financing. I think this is one reason you hear about creative financing through EB-5.”

Hotel Indigo and Embassy Suites will both require various forms of financing from the EB-5 immigrant investment program to begin construction.

Johnson said banks have simply tightened borrowing for large-scale hotel projects after being burned by hotel groups that overbuilt in major markets across the U.S.

But he said Wilmington has proven to be a gold mine of untapped hotel room growth potential.

“Wilmington is one of the few places that was not overbuilt,” Johnson said.

Damrow said business travelers continue to pump up hotel occupancy rates during the weekday and nonpeak travel seasons.

“Business demand is fairly strong nine months out of the year,” he said. “Tuesdays and Wednesdays, our hotels experience high occupancy.”

He said downtown would be the area to watch for continued hotel development.

“I don’t think people realize what is about to happen downtown … it’s really going to take off.”

Putting on the Ritz? 

While Wilmington may call itself “Hollywood East,” its notoriety hasn’t caught the attention of luxury hotel builders to land a five-star or diamond resort in the coming years.

“We’re simply not large enough to sustain such a hotel,” Damrow said. “While it would be nice, I don’t see that happening for quite sometime … certainly not in my lifetime.”

For years, developers and commercial brokers have tried, unsuccessfully, to lure the likes of a W Hotel or a Le Meridien to the region.

Many luxury hotel brands opt to build in world-class cities with metro populations exceeding 5-10 million residents.

Metro Wilmington barely breaks the 360,000-population threshold.

Johnny Griffin, director of the Wilmington Regional Film Commission, said the lack of premier luxury hotels in the city makes it difficult to convince Los Angeles/ Hollywood types to choose the area as their final filming destination.

“We have to work a little harder to sell our community,” Griffin said. “You start to put all these major cities on a list, and here shows up Wilmington, N.C.”

Griffin said some productions were looking to place their producers and crew in five-star establishments, which Wilmington does not have.

But once the film officials begin discussing the multitude of rental housing and existing hotel options available to producers, cast and crew across the region, Griffin said the dialogue begins to change.

“It is discussed early on because you want people to be comfortable, you’re dealing with high-profile people,” Griffin said. “We have clients that always ask ‘Where do stay when you’re here?’ ”

While a W Hotel or a Club Med type resort would be a major selling point in luring larger productions, Griffin said the lack of luxury hotels was not going to stop films from eying the region.

“The hotels here have done a great job catering to the unique needs of the filming crews and staff,” he said. “They make sure they have access to services and amenities to keep their clients happy and that helps.”