More than a few people think developer Tony Giarratana has his back against the wall trying to build the 70-story Signature Tower downtown.
To put it succinctly, they think he's going to fail.
But Giarratana doesn’t appear to be paying much attention to the naysayers. Instead, he's still trying to figure out how to make it happen.
The earnest developer has been toying with the idea of reconfiguring what would be the tallest building in the Southeast to take advantage of what appears to be a stronger market for hotel rooms.
On Friday, Giarratana sent a letter to the about 100 pre-construction buyers of condominiums to tell them he is exploring adding up to 132 hotel rooms to the plans for the Hotel Palomar. That would increase the number of hotel rooms from 198 to as many as 330 rooms.
The change also would mean cutting floors 15 through 20 out of the residential mix, reducing the number of condos from 400 to 340.
Why consider it?
In the letter to buyers, Giarratana wrote, "A reduction in the number of condominiums would be viewed positively by our lenders given current market conditions and would only enhance the exclusivity of the remaining Signature Tower condominiums."
Around the country, large condo projects have lost favor over the past few months in the credit crunch following the collapse in the subprime mortgage industry. Last August, Giarratana’s investment bank advisor Chicago-based Jones Lang LaSalle took a break from seeking financing for the $250-million project.
The thought was to wait until the lending markets improve. When that does happen, condo projects, however, still may have a fairly difficult time landing money. Though Nashville isn't considered terribly overbuilt with condos, national lenders still will be stinging some from the condo oversupply on the coasts.
But when the credit markets improve nationally, projects with hotels — or hotels in general — could be looked at more favorably than a condo project because the hotel industry has been on the upswing with rates and revenue. And, that is particularly true in Nashville.
Nationally, according to recent figures from Smith Travel Research, average occupancy was flat through last November but average room rates climbed 5.9 percent from $97.96 to $103.70. Revenue per available room — the money made off a room in addition to the rate — climbed the same percentage.
Nashville’s occupancy was flat through November like the national average. And, like the national figure, room rates and revenue per available increased. But for Nashville, the increases exceeded the national average, 8.1 percent and 7.2 percent, respectively.
Smith Travel Research’s figures show Nashville’s downtown outperforming the city as a whole. Occupancy was down 1.9 percent, dropping from 75.8 to 74.6, yet, room rates climbed 10.8 percent from $111.59 to $123.68 and revenue per available room jumped 9 percent.
Without the addition of new hotel rooms, Butch Spyridon, president of the Nashville Convention & Visitors Bureau, has said occupancy doesn’t have much more room to grow downtown and rates can go only so high.
The several hundred hotel rooms that have been built recently appear to be filling fairly easily. Mark Lineberry, senior vice president with Wesley Hotel Group, cautiously said that future bookings for the company’s Hotel Indigo on West End Avenue could push the hotel past the break-even point this year.
Flat occupancy combined with continually rising rates and revenue tends to make for a good building environment. Also, throw in that Mayor Karl Dean is committed to constructing a new downtown convention center, which could be open with five years if all goes well.
Is Giarratana onto something with adding hotel rooms and reducing condos to make it more attractive to lenders?
His thinking on this will get some tongues wagging as to whether he is or isn't.
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