Hotels are blooming in Atlanta, the economic hub of the Southeast. At least six hotels and 4,000 new hotel rooms have come on line over the past two years in a market that already boasted 94,000 rooms. Hundreds more rooms will be added this year.

Although the hospitality market is molasses-slow in most major American cities, new rooms are rushing through the development pipeline in this historic Southern city. For example, New York-based Loews Hotels recently unveiled its four-star Loews Atlanta Hotel in Midtown, not far from the upscale Hotel Palomar, which San Francisco-based Kimpton Hotel & Restaurants Group inaugurated last year.

“Atlanta is a market that we've always had our eyes on,” says Elif Bali, vice president of acquisition and development at Loews Hotels. Before the Loews opening, the fanciest new hostelry in town was the super-luxury, $120 million St. Regis, which opened last year in the pricey Buckhead district. Atlanta-based Intercontinental Hotels Group earlier opened a Hotel Indigo in Midtown, across from the historic Fox Theatre and plans to open another hotel downtown in August. Meanwhile, Marriott appears to be making a strong move to dominate the busy market at Hartsfield-Jackson International Airport.

What is drawing such strong interest on the part of hoteliers? Atlanta is the nation's fourth busiest hospitality hub. At a time when many other cities are still struggling, the latest numbers from Smith Travel Research show a market at the beginning stage of a modest recovery. The occupancy rate for Atlanta hotels climbed to 59.8% in the first quarter of 2010 from 55.2% in the same month in 2009. Revenue per available room (RevPAR) rose to $52.32 in March from $48.35 in the same month last year. The average daily rate (ADR) remained fairly constant at $87.53 in the first quarter compared with $87.60 in the same quarter last year.

“There is an aggressive mentality when it comes to development of hotels in Atlanta, but it is calculated development,” says Jeff Higley, vice president at STR Global, a unit of Smith Travel Research in Cleveland. “How many cities, outside of Las Vegas, have 94,000 hotel rooms? Very few.”

Atlanta is an attractive hospitality market because of the diversity of travelers and sheer volume of visitors, adds Higley. Its airport is the busiest in the country, he points out. “It's not just the convention trade, and it's not just tourism. Atlanta's got the whole package.”

Convention numbers augur well for tourism and hospitality, says William Pate, chief executive of the Atlanta Tourist and Convention Bureau. Attendance averaged 16% above expectations for the first seven of nine scheduled conventions held this year. “That shows health,” he says.

Downtown Atlanta has 12,000 hotel rooms within walking distance of the Georgia World Congress Center. “The city works best when you have large conventions of 30,000 people or more, and people want different kinds of accommodation,” observes Pate.

Tough times linger

The developers of Atlanta's new hotels didn't set out to open their inns just as the economy was just starting to climb out of a deep recession. “These projects have been in the pipeline for 18 to 24 months,” explains Higley. The developments were planned in anticipation of better times.

When the next crop of hotels reach completion, “they will be the last hotels to be seen in Atlanta for a long time,” says Mark Woodworth, a senior vice president at PKF Consulting's Atlanta office.

Lenders are wary of commercial real estate in general, and hotels in particular. They rank higher in delinquencies than other property types when it comes to CMBS-related loans. New hotel projects are expected to be scarce until the economy rides high again.

But the scarcity of construction financing may be a blessing for the owners of the newly completed hotels because it could take years for the market to absorb the current glut of hotel rooms. “This lack of new supply will allow new hotels to come on line, while existing hotels can stabilize,” says Loews' Bali.

Move over, Buckhead

Locally, the year's big hotel story is the ascendancy of Midtown, immediately north of downtown Atlanta. The high-density, pedestrian-oriented neighborhood has been attracting plenty of office, residential and hotel development.

Midtown emerged as a market distinct from downtown nearly 30 years ago but was slow to gain cachet, says Woodworth. “By the 1990s, people began noticing the residential charm of the neighborhood,” he notes. And Midtown is close enough to downtown and the convention center to take advantage of Atlanta's meeting business. “Midtown's only a five-minute cab ride away.”

With the completion of the 404-room Loews Atlanta, Midtown gained some of the status earlier reserved for Buckhead, which boasts many high-value hotels, including the 26-story, 150-room St. Regis Atlanta, developed by SR Development Co. of New York.

With the new Loews, Midtown can stand shoulder to shoulder with Buckhead as a fashionable hospitality center, says Bali. “Midtown hasn't really had a hotel of this quality since the Four Seasons opened in the 1990s.” The Loews Atlanta is part of a $500 million mixed-use project that includes 750,000 sq. ft. of office space. It was developed by Daniel Corp. of Atlanta.

Midtown appeals to young professionals in search of walkable streets in a car-oriented city.

Restoring a 1924 jewel box

That walkable character was a selling point for Loews, Bali says. “The neighborhood was becoming a vibrant focal point for the city. We saw Midtown as an alternative to either the ‘big box hotel’ environment of downtown or the exclusivity of Buckhead.”

Architecturally, the Loews Atlanta's floor-to-ceiling windows are striking. “You can look out on Peachtree Street and Piedmont Park without any obstruction,” says Bali.

Midtown continues to attract boutiques like the recently opened Artmore Hotel, a refurbished version of the former Granada Suites Hotel on Peachtree and 13th Streets.

The current owner and operator, Boutique Hospitality Management of Atlanta, has restored the Spanish Colonial architecture of the delicately detailed 1924 building. Its decorative touches include Baroque-style moldings on the window frames and obelisk-like finials atop the facade. The Artmore is located in the city's cultural arts district, a block from the High Museum of Art.

The city's downtown hotel market, adjacent to the Georgia World Congress Center, has an obvious advantage for the convention market. With many hotels built in the 1980s, downtown Atlanta hotels are investing heavily in upgrades to stay competitive. For instance, the 760-room Sheraton Atlanta received $20 million in improvements late last year.

The Westin Peachtree Plaza, designed and developed in 1976 by John Portman, is replacing all 65,000 windows in its 73-story building, which was damaged by a tornado in 2008. The city's visitors bureau calls it “the largest exterior hotel renovation in the Western Hemisphere.”

Last November, the 1,242-room Hilton Atlanta underwent a $55 million renovation of its suites, lobby, 119,000 sq. ft. of meeting space and restaurants.

A new set of sky bridges connect several convention hotels. In March 2009, the Atlanta Marriott Marquis and the Hilton Atlanta completed a sky bridge linking the two, which have a combined 2,800 guest rooms.

The downtown Hyatt Regency Atlanta is building a second bridge to link the Hyatt to the downtown Marriott and Hilton. That will add another 1,260 rooms and 87,000 sq. ft. of additional meeting space.

Is the triple-hotel package meant to handle spillover from big conventions and trade shows, or does it intend to compete directly with the city's convention center for those same shows? Both, says Pate of the visitors' bureau.

Boutiques sprout

Downtown has boutiques as well as high-rise convention hotels. The 237-room W Atlanta Downtown opened in 2009, giving the city more W hotels than any city outside New York. The newest entry to downtown's clutch of boutiques is the Hotel Indigo, developed by Intercontinental Hotel Group.

Intercontinental is renovating the former Carnegie Building, set to open later this year. “I love adaptive reuse,” says Jim Anhut, chief development officer for the Americas at Intercontinental. “None of the Hotel Indigos should look like any other.”

In refurbishing an historic building, each Hotel Indigo should reflect the local culture in some way, says Anhut. The decor of the downtown Indigo emphasizes the heritage of Southern writers, a nod to the birthplace of author Margaret Mitchell. Murals and wallpaper designs pay homage to regional literary figures.

Developers are also sinking money into hotels near the airport. Marriott International Inc. of Bethesda, Md. is building the 403-room Atlanta Airport Marriott Gateway. When completed in November, the Airport Marriott will contain 300,000 sq. ft. of meeting space, making it a formidable presence in attracting business groups to the city.

Hotel Indigo, meanwhile, also plans to break into the airport market with a boutique, even though exquisite small hotels are an unfamiliar product type in that market. “Airport hotels tend to very functional,” says Anhut. “We tend to be a little more experiential.”

Intercontinental located the airport Indigo at the crossroads of two major transportation systems, including the city's MARTA light rail, which has a station within the airport. Slated to open in 2011, the future Hotel Indigo will be located one train stop away from the airport, in quiet College Park.

Unlike other airport hotels, the Indigo is not sitting on a highway with a bunch of roaring cars and noisy airplanes, says Anhut, referring to the College Park location.

Despite the challenges of a market that is still in economic recovery, as are hotel owners and operators across the country, Intercontinental is more than willing to make new investments and face the long, slow climb to profitability required in the months and years after a new project opens. And Anhut remains undaunted. “We have a big pipeline of hotel activity in Atlanta.”

Morris Newman is a contributing writer.

ATLANTA: BY THE NUMBERS

METRO POPULATION

5.4 million

Source: U.S. Census Bureau

UNEMPLOYMENT RATE:

9.8%

Source: Bureau of Labor Statistics

METRO AREA VITAL SIGNS

Office:

19.8% vacancy, 1Q 2010

17.1% vacancy, 1Q 2009

$16.91 effective rent 1Q 2010

$17.58 effective rent 1Q 2009

Source: Reis

Retail:

14.2% vacancy, 1Q 2010

11.6% vacancy, 4Q 2009

$15.02 effective rent 1Q 2010

$15.59 effective rent 1Q 2009

Source: Reis