Colorado Springs in the midst of a hotel building boom. Is it too much?

By Rich Laden Updated: April 10, 2018 at 4:37 pm • Published: April 8, 2018 0
photo - A wave of new hotels are being constructed in the Pikes Peak Region. The Best Western Executive Plus Residency  is nearly complete and will be opening soon. The hotel is located just north of Fillmore St. on Chestnut St. Tuesday, April 3, 2018.   (Photo by Jerilee Bennett, The Gazette)
A wave of new hotels are being constructed in the Pikes Peak Region. The Best Western Executive Plus Residency is nearly complete and will be opening soon. The hotel is located just north of Fillmore St. on Chestnut St. Tuesday, April 3, 2018. (Photo by Jerilee Bennett, The Gazette)

More hotels are on the horizon for the Pikes Peak region.

In one of the Colorado Springs area’s biggest hotel development booms in decades, 20 projects with more than 2,200 rooms are opening in the next few months, under construction or on the drawing board with groundbreaking dates, according to a Gazette analysis of the proposals. The projects stretch from downtown Colorado Springs, to the city’s fast-growing north and northeast sides, to Cripple Creek and Teller County.

Why so many? Local hotel developers, as well as several out-of-state investors and management companies, are finding a lot to like these days about Colorado Springs, industry experts say.

The area’s hotel occupancy rate of nearly 70 percent in 2017 was the highest in two decades, even though it was unchanged from the previous year. When demand ramps up, hoteliers can boost room rates, which jumped last year by a little more than 7 percent on a year-over-year basis — the biggest percentage gain in a decade.

Healthy local and national economies and improved consumer confidence mean more trips and hotel stays by businesspeople and leisure travelers.

Tourism in the Pikes Peak region, meanwhile, has soared.

Since 2012, overnight travel to Colorado Springs has risen by nearly one-third, compared with a national growth rate of 9 percent, according to a consultant’s visitors profile prepared for the Colorado Springs Convention and Visitors Bureau.

That same study showed the Pikes Peak region had 23 million visitors in 2016, a 12.5 percent jump from the year before. A little more than 4 out of 10 visitors stayed overnight.

new hotels
Several new hotels are being constructed in the Pikes Peak region. A Home2 Suites by Hilton is in the beginning stages of construction on Tenderfoot Hill Road on Colorado Springs' south side. (Photo by Jerilee Bennett, The Gazette) 

“With the market being so strong, with the anticipation of new facilities, things like the U.S. Olympic Museum (opening in 2019) and other facilities in town, we frankly have trailed the rest of the state in hotel construction for several years,” said Jim Cassidy, the Convention and Visitors Bureau’s chief financial officer, citing information from the Rocky Mountain Lodging Report that tracks the hospitality industry.

Slawek Pietraszek, whose Springs-based New Vision Hotels is building a 10-story Hilton Garden Inn that will open in December at Bijou Street and Cascade Avenue in downtown, said developers nationwide are responding to the improved travel and tourism numbers they’re seeing in the Pikes Peak region.

Hotels in the works in the region include projects proposed by development, management and real estate companies in suburban Denver, Pueblo, Durango, Las Vegas, Arizona, California, South Dakota and Tennessee.

“We were behind the whole state,” said Pietraszek, New Vision’s managing director. “What is happening now is, financing is available. Investors from all over the country are just looking at the numbers for the last two to three years.”

But the wave of hotels also could pose problems for the industry.

Despite projects that bring jobs and hundreds of millions of dollars in investment, Pietraszek worries the hotel market is being overbuilt.

Out-of-town developers who have been impressed by the surge in tourism and rising occupancy and room rates aren’t familiar with Colorado Springs’ boom-and-bust history, he said.

“They don’t know our market very well,” Pietraszek said. “They’re not being very careful. They think it’s always going to be like that. I’ve been here 28 years, and it’s up and down. In my opinion, they’re overbuilding it.”

Recent history seems to back up his concerns.

In the late 1980s, the area’s annual hotel occupancy rate scuffled along in the 54 percent to 56 percent range, figures compiled by The Gazette show. As the occupancy rate rose in the early 1990s, peaking at 74.5 percent in 1996, a flurry of hotel projects followed.

The occupancy rate, however, began to slide. With the Great Recession taking hold, the area’s occupancy rate plunged to 56.6 percent in 2009.

Out-of-town investors also might not be paying attention to the Springs’ seasonal shifts in demand, Pietraszek said. Summers are great when leisure travelers and tourists flock to the area, but winters can be rough for some properties.

“What’s happening here with that is, the investors say, ‘Look, Colorado Springs is doing great, we should put another hotel there because their occupancy is good. We’ll make money there.’ But they’re all coming from the same direction. They’re all going to clash. They’re not thinking about other people building.”

One potential impact of an overbuilt market: Too many hotels might fight for too few overnight stays and be forced to slash room rates to attract guests.

Older hotels could be hardest hit in an overbuilt market. When they’re Googling a place to stay, many travelers look to newer properties.

“New hotels are nice and shiny and people are attracted to them,” said Bob Benton, a sponsor of the Rocky Mountain Lodging Report who has consulted with clients looking to build hotels in the Springs. “In the slower times of the year, the slower seasons, they’re going to be taking business from hotels that are a little bit older and may not be in as good a condition.”

Some parts of the region might be more vulnerable to overbuilding than others, Benton said. He declined to say what areas might be at risk, although he indicated that too many hotels have been built in the past in Colorado Springs’ outlying suburban areas because land was available.

Benton isn’t concerned about downtown; the area doesn’t have an abundance of hotels but does have attractions — such as the new Olympic Museum — that draw people to the area, he said.

“What we’ve seen in Colorado Springs is the very strong summers, and hotels have been able to push room rates up in the summer months,” he said. “In the winter, it gets much more competitive and room rates decline. The hotels that are going to be located in more diversified markets, where there’s business opportunities, will do better than ones that are more outlying.”

On Colorado Springs’ far north side, Springs developer Ed Ellsworth is building an 87-room Holiday Inn Express east of Interstate 25 and InterQuest Parkway. Great Wolf Lodge, Drury Inn & Suites, Hampton Inn and Residence Inn all are nearby, while an Arizona group plans a SpringHill Suites that would bring the area’s hotels to a half dozen.

Ellsworth isn’t worried about his hotel, which opens this summer. Yet more hotels beyond the SpringHill Suites, he said, would be too many.

“The point of potential saturation in the InterQuest area is SpringHill Suites,” he said. “If we hold tight at that, we’ll probably all get through it OK. But if there’s more in the works, then I think we all need to be concerned.”

Whether the overall Pikes Peak region becomes overbuilt remains an unknown.

If all 20 projects identified by The Gazette are developed, that would be too many, Benton said. That’s unlikely, however; some developers who haven’t begun construction might face rising construction, labor and borrowing costs that could force them to shelve their projects. A recession also could cause some developers and their lenders to walk away.

“I know of several projects that have been placed on hold around the country, around Colorado, because costs have just skyrocketed and gotten out of control,” Benton said. “Those developers that don’t move quickly … some of those hotels are going to end up being delayed or canceled.”

The Convention and Visitors Bureau’s Cassidy remains optimistic about the industry. Hotel developers typically do their due diligence — researching the market and talking with consultants, he said.

“Most of them (hotel developers) or many of them have a specific clientele in mind or a specific market that they plan to serve,” Cassidy said. “So it’s not like somebody’s just plopping a hotel down somewhere and not thinking about who’s going to stay in that hotel.”

Contact the reporter: 636-0228

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