University of Arkansas Seeking $30 Million On-Campus Hotel Project

by Chris Bahn  on Monday, May. 27, 2013 12:00 am  

When University of Arkansas officials opened the Reynolds Center near the Walton College of Business in 2006, they knew the land directly behind it would one day be a prime location for something.

Directly across the street was the Harmon Avenue parking garage with more than 2,000 parking spaces. Plus, unused land isn’t exactly plentiful on the UA campus.

So they made sure to run utilities to the parcel to the east for the something that would be built there sooner rather than later.

Now under consideration for that spot is a full-service hotel featuring 125-150 beds with 13,000 SF of conference space and a price tag in the neighborhood of $30 million.

UA officials view the hotel and conference center as a way to expand the school’s executive education programs, particularly in business. What the UA would also like is for the hotel to be built without any financial or occupancy guarantee on the part of the university.

Proposals from three different companies will be reviewed by a UA committee on Wednesday to see if the vision for the hotel project can become a reality in the near future. It is unknown if the three respondents will be willing to assume all financial risk in exchange for the valuable on-campus location less than a mile from Fayetteville’s Dickson Street entertainment district.

“The University of Arkansas has a vested interest in the project, but does not have a proposed obligation of any kind toward the financial success,” David Davies, an assistant vice provost for finance and administration, said. “Respondents might come back and say, ‘This only works if …’ Then the university would have to make a decision.”

The idea of an on-campus hotel with conference center has been kicked around for a number of years, Davies said. A feasibility study conducted for the UA by PKF Consulting of Philadelphia suggests such a development would find a market.

Competing Hotels

PropertyRoomsMeeting Space SFOccupancy%Rate
Carnall Hall 49 3,100 47-52 $123-$128
Cosmopolitan* 76 14,000 43-48 $68-$73
Comfort Inn 65 625 30-35 $79-$84
Courtyard 114 1,500 54-59 $113-$118
Hampton Inn 95 900 54-59 $102-$107
Holiday Inn Express 110 375 47-52 $86-$91
Homewood Suites 96 756 52-57 $102-$107
Inn at the Mill 46 1,400 52-57 $95-$100
Staybridge Suites 109 1,050 56-61 $91-$96
Double Tree Club** 85 738 54-59 $92-$97
Holiday Inn** 206 44,000 44-49 $91-$96
Embassy Suites# 400 70000 54-49 $120-$125

*After renovation and renaming as The Chancellor in 2012, now has more than 200 rooms.
**In Springdale #In Rogers
Source: PKF Consulting study commissioned by the University of Arkansas. All hotels are in Fayetteville unless otherwise noted.

PKF’s market study evaluated the demand for hotel rooms at 23 properties in Fayetteville between 2008 and 2011. In addition to all the hotels in Fayetteville, the study also looked at selected hotels of “better quality” in the region. According to the survey of 12 “quality” hotels, PKF found an average occupancy rate of 52.2 percent. Based on that demand for rooms combined with the location of the available land and other factors, including conference space available in northwest Arkansas, consultants told the UA that the campus would “create a healthy environment for the proposed conference center to sustain successful operations in the longer term.”

“The outlook for the Fayetteville area lodging market is positive,” PKF wrote in its market study. “The additions to supply will likely have a short term negative impact on overall occupancy levels. However, given these hotel additions will include meeting and function space … we believe with appropriate marketing efforts by management, these properties are anticipated to generate new demand in the market place mitigating impact in the longer term.”

The Competition

What the study doesn’t fully take into account — though it is mentioned — is last year’s opening of The Chancellor, a 207-room hotel in downtown Fayetteville. Formerly the Cosmopolitan, the renovated property more than doubled its available rooms and has 14,000 SF of meeting space with room to host events for up to 600 people. As noted in the study, The Chancellor is located next to the UA’s Global Campus offices off the Fayetteville Square.

UA sporting events and the Bikes Blues & BBQ festival are cited as events that could help keep the hotel operating between 45 and 55 percent occupancy over the first five years, according to the PKF report. But the real market for meeting those goals would be executive education events and conferences held in conjunction with the Walton College and others on the UA campus.

The Walton College alone hosts more than 140 events annually. According to the study, those events generate hotel demand exceeding 3,000 “room nights,” particularly during the months of February, March, April, September and October.

A hotel would allow the college to host more of its events on campus. The proposed conference center would add 13,000 SF of meeting space to the 12,000 that already exist in the nearby Reynolds Center.

PKF researched five similar hotel projects on campuses across the country. Though those hotels were not named in the study, Davies said the UA had looked at the AT&T Center at the University of Texas campus in Austin.

UT opened its 297-room hotel and 40,000 SF of meeting space in 2008 to complement its McCombs School of Business and executive education program. That project was fully funded by the university, Olivia Gardner, the AT&T Center’s marketing manager, said.

The University of Georgia at Athens has operated a similar venue since 1958. Georgia Center Director Bill Crowe said the facility hosts about 300 executive education events each year and another 1,500 university functions.

According to the PKF study, college/university conference centers averaged 55.4 percent occupancy in 2010. PKF suggested the UA set an occupancy goal of 45 percent in 2015 and 2016 and 55 percent in 2017. The five conference centers PKF reviewed charged an average of $140 per room and operated at 50 percent occupancy.

“Demand is there,” Crowe said of the UGA hotel. “There are a lot of advantages to having this kind of operation on campus.”

If the hotel and conference center are built, UA would have two on-campus hotels. The Inn at Carnall Hall was opened in 2003 and operates as a joint venture between the UA and private owners.

Carnall Hall was considered in the PKF study. Davies said the two hotels would serve different missions, so the UA won’t be competing for business it already owns.

“I think they could be complementary,” Davies said. “… PKF was asked to take Carnall Hall and the university interest there into account. We believe that is reflected in the size they’ve recommended for the project.”

Ted Belden, one of the hotel operators at Carnall Hall, is watching with interest as the UA evaluates the possibility of a conference center and hotel. Belden has been in conversations with university administrators, and he believes they’ll keep their financial commitment to Carnall Hall in mind.

Currently the UA has a 40-year lease with the property, which has 50 rooms and can accommodate 120 people for meetings.

“As an existing partner with the university I’m confident that the university will evaluate this opportunity for them and take my facility into consideration as they weigh the options available to them,” Belden said. “They’ll treat me fairly. I do have some concerns over what they are considering.”

While the conference center is central to the UA’s mission, it’s the sleeping rooms that hold the most value for a potential investor. Davies said it would be difficult to make money solely from a conference center.

The UA is hoping that potential investors will see the location and the potential demand from large groups attracted by the school and determine that an investment would be worthwhile. Whether anyone is willing to do that is yet to be seen. If the school is asked to subsidize the project beyond providing the land and maybe showing some flexibility with the lease, the whole idea may crumble.

“There are not a lot of conference centers being built just for profit,” Davies said. “This place, this project, if it makes sense financially, it make sense because of the demand the university brings to it.

“I don’t know whether these people that respond are going to say this is a great project, but [what] the university needs to do is put in ‘X’ million dollars. That’s the point of what we’re doing. We’re trying to find out if it’s possible.”

Projected Use and Revenue

YearRateRoom PercentOccupancy Revenue
2015 $147.50 45 $3.0 million
2016 $152 52 $3.6 million
2017 $156.50   55 $3.9 million
2018 $161.25 55 $4.0 million
2019 $166 55 $4.1 million

Source: PKF Consulting study commissioned by the University of Arkansas

 

 

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