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Astor Crowne Plaza sold to New York buyers who will keep hotel operating
The owners of the Astor Crowne Plaza, saying they are no longer able to handle the financial drain of the still-foundering post-Hurricane Katrina hospitality market, have sold the hotel at Canal and Bourbon streets to a New York partnership for $93 million.
The buyers of the hotel, Loeb Partners Realty and Deutsche Bank Group, will keep the hotel open and will continue operating it under the Astor Crowne Plaza brand.
The sale of the 700-room hotel, the largest local lodging facility to be sold since Katrina, is a harbinger of things to come, hospitality consultants and real estate brokers say.
"When .¥.¥. the market starts to look better is about the time when (hotel owners) start to bail," said John Keeling, a hospitality consultant with PKF Consulting in Houston. "They've been hanging on by their fingernails and they're on their last finger nail" and don't have the assets to continue in the marketplace after years of a down tourism market.
"It's pathetic," Keeling said of the current state of the New Orleans tourism market. "I was walking down Bourbon Street last weekend and the only people I saw on the street were holding signs begging people to come in" to bars and stores.
The Astor was the first large hotel in the city to reopen after Hurricane Katrina struck two years ago today. Even before the floodwaters had fully receded the hotel, using generators and huge water tanks, was serving as temporary living quarters for FEMA workers and first responders. The speed at which the Astor reopened earned favorable national press attention for Decatur Hotel Corp., the local company that operates New Orleans Fine Hotels, a lodging brand that until now has included the Astor.
But many of the emergency workers that kept local hotels full during the immediate aftermath of Katrina eventually moved on, and the reality of operating in a hospitality market where hotels are now only 50 percent full began to take its toll. Before the storm, occupancy rates at local hotels were generally between 70 and 80 percent, Keeling said.
In selling their hotel, Decatur Hotel owners Patrick Quinn and Edwin "Mickey" Palmer hope to concentrate instead on operating Decatur's boutique hotels in historical properties, most of which are in the Warehouse District and Downtown.
"Under the present market conditions, we decided to get back to doing what we do best, which is boutique hotels. And we're very happy" to be focusing on the boutique hotels, Palmer said. "We're glad to be able to sell. The market is just stagnant."
Quinn would not comment but instead relied a spokesperson to provide a written statement confirming the Astor's sale.
Palmer said that in 2005 before Katrina the partnership turned down a $140 million offer for the Astor.
"With a market (occupancy) of 50 percent, the (purchase) rate (based on revenue) was discounted 40 percent. It's indicative of the suffering and problems in the hotel market as it presently stands," said Hayden Wren of Corporate Realty, which represented Decatur in its negotiations with Loeb. Rusty Palmer and Mike Siegel, also of Corporate Realty, also helped with the deal.
Wren said the price of the Astor was discounted because its value, as is the case with most office buildings and hotels, is based on its revenue performance.
"You're not buying the last 12 months cash flow or the bricks and mortar, you're buying looking (at cash flow) five years and 10 years out to see what the market will hold," Wren said. "And that's a question even I can't answer with certainty."
Historically, hotel occupancy levels and room rates in New Orleans have been among the highest in the nation. Prior to Katrina, the Crescent City competed with New York, San Francisco and other large tourism markets, Keeling said.
But the local hotel industry has been hit hard by a severe post-Katrina falloff in tourism activity.
Keeling said the tourism industry's poor showing this summer was expected. Still, occupancy rates at local hotels have been even worse this year than in 2006, Keeling said.
In the first six months of this year, hotels in the New Orleans area reported an average occupancy rate of 56.4 percent, compared to 62.6 percent in the first six months of 2006.
Keeling suspects that several hotels -- especially smaller hotels without meeting space -- are suffering.
"If you haven't over-leveraged (in debt), and your operational costs are reasonable, and you can write a few checks to keep the vendors at bay and get through this, the question becomes how long. This time this year a lot more people will be trying to sell" their hotels," Keeling said.
Still, Keeling is upbeat. "The New Orleans (hospitality market) will (end up) doing just fine. It's a question of just when and who will benefit -- current owners or future owners?"
Loeb Partners is clearly hoping to benefit.
Nick Rizzo, Loeb's Managing Director, said he's confident Loeb has the wherewithal to weather the current downturn in tourism. In acquiring the Astor, Loeb's strategy is to be well-positioned when the market returns to pre-Katrina levels, even if that doesn't occur for another five to 10 years, Rizzo said.
Loeb has long had a presence in the New Orleans market. The company owns 50 percent of the Canal Place and Place St. Charles office buildings.
"Out market strategy is that we are long-term buyers and we believe in New Orleans," Rizzo said.
He also said that the towering property is "irreplaceable" at its Bourbon and Canal location and that Loeb will invest a substantial amount of money in new furniture, fixtures and finishes.
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