Hotel Construction Frenzy Cools as Occupancy Rates Drop on I-40

Low interest rates encouraged a construction boom in Arkansas’ hotel industry, and the result seems to be a glut of rooms.

The new construction coupled with an economic downturn has led to a decrease in occupancy rates for hotels and motels along Arkansas’ stretch of Interstate 40. That may lead to price increases as hotel owners and managers balance their occupancy and rental rates to make a profit.

“When I drive I-40 from Prothro Junction west, I see them building hotels, and I think, ‘Why are they building another hotel there?’ ” said Gregg Shinn, of Shinn Enterprises Inc. of Hot Springs.

Shinn owns the Quality Inn in Magnolia, Comfort Inn & Suites in Camden, Holiday Inn Express in Searcy and Comfort Inn & Suites in Bryant.

The 78-unit, $3.2 million Comfort Inn in Bryant, owned by Shinn Shinn & Spelman LLC, had its grand opening July 26.

“Bryant is a desirable market because … there is a lot of growth there as a bedroom community to Little Rock, and there is room for growth in industrial and residential areas,” Shinn said.

Shinn chose Bryant over Benton because it has better restaurant choices and better interstate access.

Debra Reaves, the hotel’s general manager, said Bryant’s strong school district drives interest in the area.

“As people are getting acquainted with an area, they need a comfortable place to stay,” she said.

With 20 part-time employees, Reaves said the hotel will average 70 percent occupancy year-round. Shinn echoed her projection and said the break-even point for his hotels is generally 45 to 50 percent occupancy.

“Most of your small towns are packed,” Shinn said. “Little Rock is pretty well saturated. You take a small market like El Dorado, Magnolia and Camden. We built a 69-unit property in Camden, then a competitor built a 64-unit property there. Magnolia has two hotels; El Dorado has had three hotels built in the last two to three years. That affects all three towns.

“Our room rates increased in Camden after the competition opened because we had to make up for the 8 percent to 9 percent drop in occupancy.”

The occupancy rate would have dropped even further had it not been for crews that filled the rooms early in the year while cleaning up after last December’s ice storms.

Shinn may sever his ties with the Quality Inn franchise in Magnolia.

“We’re weighing whether to keep it a franchise or not by weighing how much it costs us in fees and how many registrations we get,” he said. “If you’re paying $7,500 a month for franchise fees, it takes a lot out of what you could do in direct advertising. Franchises get anywhere from 8 to 11 percent off the top.”

If Shinn thinks the business in the Camden, El Dorado, Magnolia triangle is tough, he should take a look at Conway.

“The market in Conway is pretty saturated,” Angela Bagby, manager of the Holiday Inn Express of Conway and office manager for five Conway hotels owned by Ken Patel. Patel owns the Holiday Inn Express, the Economy Inn, the Ramada Inn, the Days Inn and the Comfort Inn & Suites.

“We don’t have any plans to build any more hotels because the market is so saturated,” Bagby said. “There are 14 hotels in Conway. This year has been a lot slower than in the past.”

Bagby said the slowdown is due to higher gas prices, market saturation and the economic slowdown.

“At all the association meetings, everyone is crying the blues,” she said. “1997 was a really good year for everybody; ever since then it has been downhill.”

Greg Locke, owner of the Best Western in Conway, said Arkansas’ hotel industry had traditionally been underdeveloped, but now it is catching up.

“We get a lot of pass-through traffic in Conway,” he said. “We’re at the point of being overbuilt on I-40. You’ve got a stretch from Prothro Junction to Clarksville that is nearly overbuilt. Conway is completely overbuilt. There are occasional weekends when hotels will sell out, but anymore it is very rare.”