By Jennifer Jacob / staff writer
An independent study has projected the occupancy of a new hotel to be constructed in the abandoned Threefoot building will stabilize at an average of 64 percent.
But the projected occupancy has raised questions in the community, with some individuals and local hotel officials doubting that such an occupancy rate will be reached. The study was released last month at a public meeting.
"I do think it's going to be tough keeping it at 64 percent occupancy," said Suzy Johnson, director of the Lauderdale County Tourism Commission. "I'm all for this project, don't get me wrong. But I do think it's going to be a challenge."
There has been some question even as to what the occupancy rate means.
To Meridian Mayor John Robert Smith, "64 percent (at $140 per night) stabilizes and pays its operations, maintenance, debt services, expenses, and a reasonable rate of return to the owners."
Smith said the occupancy rate needed to simply pay the debt service would be much lower than 64 percent.
"We have certainly looked at what has been generated as far as revenue versus debt service," he said.
Josh Colin, a project manager for the development firm HRI, which is pushing to become developer of the Threefoot project, said that the projected 64 percent occupancy rate is not related to the feasibility of the project.
"Sixty-four percent is not the occupancy rate it needs to be profitable, it's just the occupancy rate it's projected to have," Colin said.
When asked about the basis for the study that projected the occupancy rate, Colin said: "I'm sure it had something to do with the (MSU) Riley Center and where they see the hotel industry trending and the occupancy at roadside hotels."
The hotel will not open with an occupancy rate as high as 64 percent or a room rate as high as $140, Smith said, but will, over the course of a few years, stabilize at those rates.
The estimate for the time between the hotel's opening and its stabilization will come with developer proposals, Smith said.
"HRI has legitimized that this is a viable project," the mayor said, simply by taking an interest in it. "They wouldn't be proposing if they weren't expecting a significant profit."
"The developer is worried about a lot more than paying off our debt," he added. "Their motive is to make a profit. The city has a different way of looking at it because we're not looking at necessarily profit for the developer."
In Lauderdale County hotels pay a bed tax of 2.5 percent of their gross proceeds on room rentals. This money is collected by the state tax commission and then turned over to the Lauderdale County Tourism Commission.
In the 2007 fiscal year, the state returned $522,403 to the tourism fund. In the 2008 fiscal year it returned $547,227, which is $24,824, or 4.75 percent, more than last year. This could mean that more rooms were rented in 2008, but, said Kathy Waterbury of the state tax commission, it could just as easily reflect an increase in room rates rather than rentals.
The state does not track the number of room rentals, Waterbury said, only the gross proceeds generated from the rentals.
The tourism commission, Johnson said, attempts to collect local occupancy rates but hotels often refuse to divulge them.
Abdul Lala, president of Lala Enterprises, owns six hotels in Meridian and is in the process of constructing two more. A hotel in the Threefoot building could be viewed as competition to Lala's hotel. Lala has also expressed a previous interest in constructing his own downtown hotel.
Lala provided the Star with a copy of a study by the Mississippi Hotel and Lodging Association, which shows that hotel occupancy rates in the nine county East Central Mississippi area have dropped by 8.6 percent in the past year.
The study, which surveyed 23 of the 40 hotels in the area, showed that occupancy from January to May of 2007 was at 64.2 percent, dropping to 56.3 percent from January to May of 2008.
Lala disapproves of the project, saying that he believes the cost, which will total around $45 million, is too high. Lala said he is building seven hotels in Mississippi and Alabama, all with full amenities, and that none of them will cost more than $17 million.
The bulk of the proposed project's cost will be contributed by the city, the developer, and private investors. The city may contribute a loan of up to $14 million to the project, the developer will contribute $5 million, and private investors will contribute $24 million for which they will receive historic tax credits.
Lala believes this cost is not justified. "Emotions are there," he said, "we want to salvage the Threefoot building ... but this is not going to be practical."
Other hotel officials in the area who wished to remain anonymous had doubts about the project as well. Parking, they said, will be a major problem. The current plan for the Threefoot project has guests park at the nearby city parking garage.
Johnson, too, worries about the practicality of the project. "We need a hotel downtown desperately," she said. "But we also need to have something for them to do downtown after their conference."
But Smith said he believes the hotel will attract more businesses and events to the downtown area by increasing both downtown population and the number of conferences held at the MSU RIley Center for Education and the Performing Arts.
"We're going to create synergy in downtown," he said.
Additionally, he pointed out at the public hearing that HRI has invested in many similar projects which were successful. HRI specializes is renovating old, abandoned buildings, making them into profitable businesses. This process is typically more costly than constructing new buildings like Lala's.
The firm is currently working on the King Edward hotel project in downtown Jackson. The hotel, which has a conspicuous presence in Jackson and has been abandoned and decaying for decades, will be converted into a combination of Hilton Garden Inn and luxury condominium housing.
HRI has not yet been chosen as developer of the project. The city council will take proposals from developers this month and will choose one in September. But HRI has been involved in the planning of the project for quite some time. "HRI means to get it," Smith said of the development deal.
The company, which is based in New Orleans, has developed apartments, condos, retail space, and hotels in historic buildings. Historic building hotels, which HRI has already opened include the Chateau Sonesta hotel in New Orleans and a Hilton Garden Inn in downtown Richmond, Va.
Smith said at the public hearing that there will be no tax levied on citizens for the Threefoot project, and that the money loaned by the city will be paid back by the project. He said the worst case scenario is that the developer leaves the project — leaving the city with ownership of a $45 million hotel after having invested $14 million.
HRI president Pres Kabakoff said at the public hearing that, if awarded the project, HRI will not abandon it but will stay to manage the hotel.
