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'Hotel Row' springs up in Midtown Anchorage

Anchorage's lodging market is robust. And the hot place to build has shifted from downtown and the airport to a stretch of C Street where the city's white-collar business district transitions into its grittier industrial belt.

The mini-city of Hiltons, Marriotts and other well-known chains boasts mountain views, but is otherwise short on classically Alaska charm and scenery. Aside from the hotels themselves, cowboy-themed chain restaurants and a TGI Fridays are among the key landmarks. And yet room occupancy is high, revenues are healthy and big-brand hotels keep arriving.

"We're going to see a lot more growth there. You're going to be running out of dirt to build on," said Michael Mohn, vice president at Seattle-based hotel consultancy Kennedy & Mohn.

Since 1997, hotel developers from the Lower 48 have, in effect, colonized a half-mile stretch of C Street from just north of Tudor Road to International Airport Road. Two more hotels -- a Hyatt House and a Courtyard by Marriott -- are under construction, prompting some in the industry to dub the area "Hotel Row."

Investors are attracted to Alaska's largest city by the strength of key hotel market indicators. In 2014, the 12-month average occupancy rate in Anchorage was 71 percent versus 64 percent nationwide, according to figures from STR, a Tennessee-based hotel data provider used widely by the industry. That same year, the revenue per available room was $91.74 in Anchorage and $74.07 nationwide. The previous five years show a similar pattern of Anchorage outperforming the nation.

"We see solid demand patterns and then this huge windfall in the summer when we double our rates and where everybody -- the good, the bad and the ugly -- benefits," said Mohn, who has researched the city's lodging market for the Alaska Industrial Development and Export Authority, a state corporation.

Mohn said the better-quality national brands that make up the bulk of the C Street hotels post even stronger financials than the city as a whole.

"The newer stuff we've built over the last decade is doing amazing numbers," he said. "It's almost laughable in terms of how these properties outperform the broader averages."

But in a municipality the size of Delaware, why are so many hotels squeezed into one small area?

In flocking here, developers are simply upholding the cardinal consideration of real estate -- location. The land itself was zoned, available and affordable. It's central enough that hotel shuttles and guests with rental cars can easily reach corporate offices and retail stores in Midtown and downtown, the airport or the medical and university districts. And unlike downtown, parking is plentiful and free.

Tammy Griffin, general manager at the Crowne Plaza, has worked in the city's hotel industry for 30 years. She believes the location is ideal for the hotels' clientele, which includes flight crews on mandatory rest; oil and gas industry employees; rural Alaskans in town to see family, shop or get medical treatment; groups of students competing in athletic tournaments; and, of course, tourists.

"Lots of business is coming from the airport and Alaskans from out of town because Anchorage is the hub for commerce in our state," she said. "We run very high occupancy rates in this cluster. That's why people keep building here."

A study by researchers working with the Cornell University School of Hotel Administration, the nation's top-ranked hospitality management program, suggests hotels can benefit from building in close proximity to each other.

That's especially true along C Street where, given the large array of brands, there's actually less competition than there appears to be, according to municipal property records. Crowne Plaza, Motel 6, Fairfield Inn and Suites and the incoming Hyatt House are all owned by William Lawson of A&A Construction and Development, based in Spokane Valley, Washington.

Hilton Garden Inn, Hampton Inn and Homewood Suites -- all Hilton brands -- belong to BRE Select Hotels Corp., a New York-based real estate investment trust. BRE is an affiliate of Blackstone Real Estate Partners VII, which in turn is a fund of Blackstone Group, the world's largest private equity investor in real estate.

"For us, there is savings in shared expenses," said Griffin. "For example, we can share our airport vans and have one driver working for our three hotels rather than having a driver for each property."

Ric Marko of Affinity Hospitality is the area's newest player. His company, based in Newport Beach, California, owns and is building the new Hilton Home2 Suites, scheduled to open in December, and is in the very early stages of adding a Courtyard by Marriott in a cleared lot next door.

Like most of the hotels in the cluster, these are extended-stay properties with kitchens and other amenities for guests staying anywhere from five days to three months, Marko said. Nationwide, the strong performance of extended-stay hotels has created a buzz in the industry and their presence in urban areas is growing.

On an overcast afternoon in early November, subcontractors throughout the four-story Home2 Suites were busy affixing bedskirts, laying mattresses on fold-out couches and finishing the hotel's clean-lined, contemporary look.

"There's the thought that a cluster of hotels generates more traffic for everybody," said Marko, who has been involved in building more than 300 hotels and hundreds of other development projects across the country. "When demand is as strong as it is, everyone is doing well. Of course, when it softens, everybody is scrambling."

With more hotels being built, elbow room is getting scarce. Including the new builds, the C Street hotel cluster will account for close to 15 percent of taxable visitor accommodations in Anchorage. As of the second quarter of 2015, the municipality's tally of rooms at hotels, motels, bed-and-breakfasts and vacation rentals totaled 8,333.

Marko is aware of the negative impact protracted low oil prices have had on state spending and of the potential for Alaska's economy, which has so far held steady, to falter. Although an economic dip would dampen business travel, Marko sees the potential upside of cheaper oil in driving more tourist traffic.

"Lower oil means more disposable income for travelers," he said.

To have so many hotels rooms in such close proximity doesn't seem to faze anyone.

"There's a lot of supply, but we're confident that the Midtown market can support it," said Katherine Steed, vice president of sales and marketing for Griffin's employer, a hotel management company called The Hotel Group based in Edmonds, Washington. "All of us have done quite well."

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