Sarasota's hotel boom comes with questions, concerns

How many hotel projects could you possibly build in downtown Sarasota?

Since 2013, that question has gradually evolved from a rhetorical exercise to a practical concern. According to developers, there’s room for at least eight; plans for a 76-room upscale hotel and a 163-room Hampton Inn and Suites in the Rosemary District came to light last week.

The developments currently proposed would create 1,290 new hotel rooms in the downtown core over the next five years. That’s nearly triple the current stock of hotel rooms in the area. Officials agree there was a demand for more hotels in the heart of the city, but how much is too much?

John Meshad is president of JWM Management, the firm developing the One Palm project that includes a 138-room Aloft Hotel. Nearing completion, it will be the first finished hotel project post-recession. Having seen the deluge of hotel proposals that followed, Meshad doesn’t necessarily see that as a good thing.

“If I’d have known ahead of time, I probably wouldn’t have built it,” Meshad said.

"If I’d have known ahead of time, I probably wouldn’t have built it." — John Meshad

Meshad said he wished the development industry were able to show more restraint when it identified a growth market. Whether it’s hotels, condos or offices, stuff gets built until that market crashes — and then it’s on to the next hot thing, Meshad said.

“If a bank will lend, there will be somebody that will borrow it and there’s somebody that will build,” Meshad said. “There’s just a lack of discipline.”

Visit Sarasota County President Virginia Haley said the market for hotel financing is as strong as it ever has been on a national level. Still, these things work in cycles. There was a national overbuild of hotels around 2005, a phenomenon that largely missed Sarasota. That was followed by a period during which practically no hotel projects were proposed.

Right now, the market might be at the turning point where financing starts to tighten. Two weeks ago, Haley met with a hotel financier who showed signs of apprehension regarding the number of new projects.

“Is it too much? That’s not for me to say,” Haley said. “But in my meetings with them, you could see the concern was starting to grow.”

Getting their fill

Not everyone in the field is as concerned. Jim Bridges is the president of Jebco Ventures, which broke ground on its 200-room Embassy Suites project Wednesday. It was Jebco's first hotel project, but the developer is already on to the next one: Bridges hopes to begin construction on a 163-room Hampton Inn and Suites within six months.

"I don't know how many are going to get built. I know we're going to build ours." — Jim Bridges

For Bridges, the other projects haven't affected his outlook on the market. His company has been careful with its financing, and isn't depending on filling all of the rooms every night to succeed. Jebco has conducted a number of market studies to determine how much more room is left for new hotels, and the findings have made Bridges comfortable proceeding with another project.

“There are a lot of projects,” Bridges said. “I don't know how many are going to get built. I know we're going to build ours.”

As vice president of sales with Kolter Hospitality, James Hansen will help oversee the 255-room Westin Hotel as part of the Vue Sarasota Bay development. That project should be completed in 2016, and Hansen says the hotel projects to come won’t significantly impact his strategy.

“There’s going to be increased competition, which will drive rates up,” Hansen said. “It’s a signal that Sarasota’s a great market to be having a hotel in, because the demand is there.”

Haley is already working on a strategy for filling the influx of hotel rooms. As a rule of thumb, she said, you generally don’t want to introduce more than 2-5% of the existing hotel rooms into the market at one time. The two projects scheduled for completion in the next 12 months represent a 59% increase. Within five years, the number of rooms could see a 194% increase.

Increased competition isn’t necessarily a formula for driving rates up if you can’t fill rooms at a certain price point. Haley isn’t just concerned about a decreased vacancy rate. If hotels have to discount their rates to attract customers, the ensuing battle between businesses could create a negative spiral. Overcoming that phenomenon can take years, she said.

Visit Sarasota County hopes to draw more group vacationers and meetings to the area. Those markets could take up larger blocks of space and can serve as a foundation to lure more individual tourists in the future. The group also hopes to target cultural and leisure travelers, particularly in the international market.

“A lot of that is going to come through packaging,” Haley said. “You can come here, stay at the Westin or Aloft and have a day of Jet Skiing, a day of kayaking, things like that.”

Haley said Visit Sarasota is currently recruiting meetings that could be housed within the hotels themselves. However, the spike in hotel stock has fueled conversations regarding the potential creation of a conference center in the city.

Downtown Economic Development Coordinator Norm Gollub suggested a conference center could be a useful tool for maintaining off-season hotel activity.

“I am concerned about vacancy rates in the long term,” Gollub said. “This should stimulate conversation about some type of conference facility so that these hotel rooms are occupied throughout the year and throughout season.”

Earlier this year, county commissioners signaled some interest in the creation of a conference facility. Last year, however, the City Commission ruled out the possibility of building a conference center on the bayfront, stating that the facilities are money-losing ventures.

Asked about the potential amenity, Meshad referenced the commonly held notion that conference centers operate in the red.

“It’s a great idea — as long as I don’t own that conference center,” he said.

Haley said even successful models for conference centers require a subsidy, with cities hoping to make their money back through increased sales and bed taxes associated with new visitors. She’s expressed the need for caution and precision when it comes to developing a successful conference center and said Visit Sarasota is focusing on more immediate opportunities for filling hotel space.

Jason Cincotta is the Boston-based developer of The Sarasota Modern, an upscale hotel proposed for the Rosemary District. He’s just beginning the city’s review process now, and even with the questions surrounding the hotel market in Sarasota, he’s eager to move forward.

“We’re excited to get moving,” Cincotta said. “We think the neighborhood and the city is ready for what we could provide."

As long as the market will bear it, more new developers could find themselves saying the same thing.