Denver Hotel Construction Skyrockets

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Union Station in downtown Denver is undergoing a $50 million conversion into a hotel, retail and transportation hub. [Photo: CPR/BMarkus]

Hotels are filling up in Denver. As the economy has slowly improved, more people are traveling. But packed hotels are leading to higher prices, which is driving a big spike in hotel construction.

Business is good these days for commercial real estate agent David Gleason, who was visiting Denver recently from Layfayette, LA. He’s busy, and he’s making money. That means he’s traveling for work again.

“Over the last two years, I’ve probably done more travel for business than I’ve done for the last ten or fifteen,” Gleason said.

Gleason was in town for a real estate convention. Outside his hotel on the 16th Street Mall, he said he was happy to be traveling again because networking is crucial for his business, and networking over the phone just doesn’t work.

“You could attempt it,” said Gleason, “but it’s way more successful to meet people in person so they can put a face to the name.”

Gleason says he’s paying more than he expected for his room at the Sheraton downtown. That’s because Denver’s hotel market is red hot. More than 80% of rooms were filled last month - the highest level in at least five years. That has led to higher prices and new construction.

Some of that construction is taking place at Union Station, where crews are busy converting the historic downtown building into a full service hotel and transportation hub.

The developer on this $50 million project is Sage Hospitality, run by Walter Isenberg. He says the recovery in the hotel industry includes conventions and corporate and leisure travel.

“Those are kind of the three legs of the stool,” said Isenberg, “and we’re seeing tremendous growth, frankly, in all of those three areas.”

Denver is also seeing tremendous growth in construction. Nearly 2,000 rooms are being built this year, which is three times the number being built just a couple of years ago.

Isenberg says the recession was a bleak time for hotels, which saw their revenue fall more sharply than at any time since the Great Depression.

“That puts it into perspective about how bad things really were,” said Isenberg, “so it feels pretty good today, certainly compared to what was going on just a few years ago.”

Back then, panicked developers pulled back on new hotel projects. As demand has picked back up, there aren’t a lot of new rooms to relieve the pressure. Isenberg says that’s led to big revenue gains for hotels that are open, and not a moment too soon.

“If the downward trend had continued much beyond ‘09 and ‘10, I might be a barista at Starbucks,” he said.

Revenue per room in Denver is now a staggering 35% higher than during the depths of the recession.

“The last couple of years have been so so good for the existing operators, that peaked a lot of people’s interest,” said Jan Freitag, with Smith Travel Research in Nashville.

Those “people” he’s talking about are banks.

“A lot of money that was on the sidelines before is now ready to invest again,” he said.

Financing new hotels is very risky. Times are good now, but Freitag says there’s no guarantee those rooms can be filled when a new hotel opens, which sometimes doesn’t happen until years after construction begins.

At the Union Station project in downtown Denver, hotel owner and developer Walter Isenberg says the industry always builds too much when times are good.

“I think our industry always figures out how to screw up a good run up, by overbuilding,” he said.

The number of rooms under construction, however, is still a fraction of what was being built in the boom time before the recession. Isenberg says banks will probably never finance that much building again.