New Holiday Inn rises in downtown Chattanooga as market weakens

This architectural rendering by River Street Architecture shows what the new Holiday Inn and Suites on Chestnut Street will look like when finished in May 2015.

Partners Roshan Amin, left, and Bob Bhagat remove their hardhats after the groundbreaking of their new $19 million Holiday Inn project at 434 Chestnut St. on Monday morning.

Site of new Holiday Inn and Suites in downtown Chattanooga.

The new Holiday Inn and Suites in downtown Chattanooga is going up in a market that's going down.

Work is officially underway on the $19 million hotel at the corner of Chestnut and Fifth Streets, and the 140-room hotel should be open by May 2015, developer Roshan Amin said. But as the 7-story building starts to rise, demand in Chattanooga's hotel market continues to fall.

Hotel occupancy rates have dropped 5 percent since 2011. And the number of hotel room nights sold annually in Chattanooga fell steadily too: from 2.15 million in 2011 to 2.11 million in 2012 to 2.06 million in 2013.

And at the same time, hoteliers aren't able to charge more for their rooms. Chattanooga's average room prices were rising quickly in 2011 -- up more than 6 percent in 2011. But in 2012, that growth rate dropped to 3 percent, and by 2013, to 2 percent. So far in 2014, there's been practically no growth in room prices, said Jan Freitag , senior vice president at Smith Travel Research.

"It looks to me, from the outside looking in, that you're on a declining trajectory," he said. "There's growth, but not a whole lot of growth. The room rate grew 6.4 [percent] then 3.1 [percent] and 2.1 [percent] and now it's basically zero. Where are you going in 2014? That's the question."

But Amin and partner Bob Bhagat aren't daunted. They're confident the market will support another downtown hotel over the long term.

"The national economy is picking up," Bhagat said. "Chattanooga did really well during the national downturn, and since the national economy is going up, of course business is going to go up. In the next four to five years, the investment will do well."

Bob Doak, president and CEO of the Chattanooga Convention and Visitors Bureau, said the new hotel is signal that developers are convinced of Chattanooga's future growth.

"Hotel developers don't react to lagging trends," Doak said. "They're looking at future trends. So these guys are spending a tremendous amount of money and they're smart people. They know what they're doing. They're forecasting there will be a greater demand in Chattanooga for hotel rooms. I think it's a compliment to our city."

Still, the only part of Chattanooga's hotel market that's on the rise is supply -- 855 new hotel rooms have opened since 2011, according to Smith Travel Research. The new Holiday Inn and Suites will add 140 more.

Bhagat and Amin will spend $19 million to put up a high-quality hotel, Amin said. The building will include two floors of parking, a restaurant, fitness center and indoor pool. The hotel will feature a light and airy design with glass on the ground level, said Justin Dumsday, a partner at River Street Architecture.

"This is not going to look like a typical Holiday Inn off the freeway," he said. "This is an urban version. The whole first floor is glass, it's a very clean, very modern look."

Amin and Bhagat have been working to pull together financing for the project for years. Cornerstone Community Bank led the charge, pulling together a group of banks to fund the hotel.

President and CEO Frank Hughes said he doesn't think the market is overbuilt, especially with all the events that draw visitors to Chattanooga, and the new events the city continues to attract, like the Ironman triathlon.

"I don't know if you've been watching downtown, but it's been a renaissance," he said. "You have large gatherings of people throughout the summer and the fall, and except for a couple of slow months in January and February, downtown is booming. It's just wonderful. And hotels are needed downtown to house all that activity."

He added that building a national brand like Holiday Inn and Suites is an important part of the deal.

"When you get a national brand, we feel comfortable that they'll be able to fill it," he said.

The hotel will create about 120 construction jobs during the next year, and, when finished, will support a staff of about 80 employees, Amin said. He's looking for a local restaurant to fill the 5,000 square-foot restaurant and patio in the ground level, and said now is the right time to build.

"We're better prepared now," he said. "We're looking forward to the challenge."

Contact staff writer Shelly Bradbury at 423-757-6525 or sbradbury@timesfreepress.com with tips and story ideas.