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Hotel building boom sweeps Pittsburgh region

Natasha Lindstrom
| Friday, Dec. 19, 2014, 10:45 p.m.
The SpringHill Suites Marriott is a new hotel along Washington Road in Mt. Lebanon, Friday, Dec. 19, 2014.
Keith Hodan | Trib Total Media
The SpringHill Suites Marriott is a new hotel along Washington Road in Mt. Lebanon, Friday, Dec. 19, 2014.

The hotel construction industry is booming, and the greater Pittsburgh area has one of the fastest-growing hotel markets in the nation, data show.

The region has 55 projects, totaling 6,012 rooms, in its hotel construction pipeline, for a rate of planned rooms relative to existing rooms of 23.6 percent — the third highest in the country, according to Lodging Econometrics data compiled for the Tribune-Review.

Only Miami and New York have higher relative growth rates.

“You can see that developers are recognizing this boom and just capitalizing on it,” said John Valentine, executive director of Pittsburgh Downtown Community Development Corp.

Developers planning boutique properties and upscale, branded venues are flocking to the Pittsburgh region amid a rise in tourism and climbing demand at the David L. Lawrence Convention Center. Bookings are up by more than 50,000 for next year, organizers say, setting up 2015 to be the best year yet for such events.

The construction pace puts the region's hotel supply safely within reach of the nearly 24,000 rooms it would take for Heinz Field to host a Super Bowl, on the heels of last year's championship game at MetLife Stadium in New Jersey marking the first time the National Football league chose an open-air, cold-weather stadium.

Much of the development is concentrated in Pittsburgh's greater Downtown area — slated to grow by 1,500 rooms, up to more than 6,000 — but the market observed by Lodging Econometrics includes a surge of developments across Allegheny, Beaver, Butler, Fayette, Washington and Westmoreland counties. Marcellus shale activity boosted business in some areas.

How much is too much?

Valentine said he's encouraged by what the hotel boom could mean for conventions.

“But I am concerned that you're going to get up to a point of saturation, so if I were a developer, I would think that the residential development has a lot farther way to go, and there's limited stock Downtown.”

To be sure, “all real estate is cyclical,” said Bruce Ford, senior vice president at Lodging Econometrics, a New Hampshire-based global hospitality real estate data firm.

But with “near perfect” hotel development conditions, such a bust “doesn't appear like it's going to be imminent,” Ford said. He expects sustained growth in the industry for four to five years.

The year-to-date average daily occupancy rate in Pittsburgh hit 69.4 percent through November, according to data from Smith Travel Research. That's up from the 66 percent average through November 2012, and up from 61.8 percent in 2009.

A hotel does well if its occupancy rate hovers around 63 percent, Ford said.

“Even if you add a couple thousand guest rooms and that occupancy settles back to 65, 64 percent, you still have a very profitable market,” Ford said.

Revenue soars

Pittsburgh area hotels raked in an estimated $669.1 million in revenue this year through November, up from $622.6 million during the period last year, a significant improvement from $453.5 million during the tail-end of the economic downturn in 2009, Smith Travel Research data show.

This region's hotels generate an average daily return of $80.97 per room, up from $76.19 per room in 2013 and $62.61 per room in 2009. Year-to-date revenue per room is up 6.3 percent — nearly double the 2.5 percent national average.

By year's end, the national average daily occupancy is on pace to hit a 17-year high, and average daily rates and revenue-per-available-room should finish at record highs, Lodging Econometrics reports.

The industry's favorable figures caught the attention of lenders, making it easier for developers to secure financing, Lodging Econometrics found. The research firm expects interest rates to stay at near-record lows through mid-2015.

PenTrust Real Estate Advisory Services was among lenders lined up for a scrapped Radisson Blu project that a private developer proposed building atop the August Wilson Center for African American Culture on Liberty Avenue, Downtown, according to once confidential documents filed in Allegheny County Common Pleas Court.

“We understand that the proposed hotel would benefit directly from the strong, pent-up demand for hospitality in Downtown Pittsburgh that is being generated by the convention center and the surrounding corporations,” Tyler Noland, PenTrust's director of underwriting, wrote in a June 20 letter expressing interest in putting $12 million toward the roughly $50 million Radisson proposal.

The developer — jilted when the sale of the August Wilson Center went to the Pittsburgh Foundation — has three projects in the works within city limits, GreatStay Hospitality partner Matthew Shollar said. He declined to specify locations but noted one would be a substantial project Downtown.

“We are in the midst of dealing with a very exciting Downtown project that will bring another hotel with a unique set of features to Pittsburgh,” said Shollar of Squirrel Hill. “We've been interested in preservation and in adaptation.”

The three biggest projects under construction include: a 248-room Hotel Monaco in the former Reed Smith building on Sixth Avenue; a 229-room Embassy Suites on the top 11 floors of the 24-story Henry W. Oliver building; and a 206-room Drury Inn & Suites on Grant Street at Fourth Avenue.

Outside the Golden Triangle, projects include an Indigo Hotel and an Ace Hotel in East Liberty; a Hyatt Place at The Meadows Racetrack & Casino in North Strabane; a Hampton Inn and Suites in Harmar and a Hampton Inn in Butler County; and a Hilton Garden Inn in Robinson.

Natasha Lindstrom is a Trib Total Media staff writer. Reach her at 412-380-8514 or nlindstrom@tribweb.com.

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