Correction: This article has been updated to reflect the number of Downtown hotels under construction or planned is 15 and will add more than 2,400 rooms.

Downtown Memphis’ historic Dermon Building is being turned into a Holiday Inn Express.

A win for adaptive reuse and an “L” for Memphis’ ongoing struggle to land a large, full-service hotel.

“A 150-room Holiday Inn Express doesn’t help the convention market Downtown,” said Wayne Tabor, Metropolitan Memphis Lodging and Association president and CEO.

On Sept. 12, the Center City Revenue Finance Corp. approved a 10-year payment-in-lieu-of-taxes for the Dermon Building renovation. The 10-story building, which dates back to 1925, is expected to open as a 150-room Holiday Inn Express by 2025.

“Just because you add more rooms doesn’t mean you make demand grow,” said hospitality consultant Chuck Pinkowski of Pinkowski and Co.

Pinkowski added that while International Hotels Group (IHG), which owns the Holiday Inn Express brand, is a strong company and Holiday Inn Express is a strong brand, the demand is minimal compared to a convention center hotel — a need many believe the market still needs.

“Supply grows in batches unless you have a major hotel that creates a significant amount of its own business,” Pinkowski said.

The ongoing battle within Downtown’s hotel industry is filling a decades-long void of a convention center hotel. The situation is oft referred to a “chicken and the egg” situation by the likes of Pinkowski and Tabor. When Memphis had the hotel accommodations for room blocks the convention center was outdated. Today, the recently renovated Renasant Convention Center is waiting to cash in on its $200 million renovation intended to draw first-rate convention business.

Memphis hotel pipeline short on large hotels

According to a July 2023 report from Pinkowski and Co., there are 15 hotels planned or under construction in Downtown Memphis. Those 15 hotels are expected to add more than 2,400 rooms to the market.

Of those 15, only two are expected to have more than 200 rooms: A 406-room hotel in the Pinch District (part of developer Tom Intrator’s $1 billion Pinch District development) and the 365-room Grand Hyatt.

In November 2022, the Grand Hyatt deal fell apart. Last month, developer Chance Carlisle of Carlisle Corp., said he and his team are still working on bringing the Grand Hyatt brand to Memphis, however, any iteration of that will look completely different from the plan that collapsed last year.

According to the July 2023 report, 44 hotels are planned or under construction throughout Shelby County, with only three expected to have 200 or more rooms including the proposed Pinch District hotel and stalled Grand Hyatt. (The other is the 200-room hotel at Liberty Park.)

According to a 2022 annual report from Pinkowski and Co., the Memphis market has more than 290 hotels. Only five hotels have 300 or more rooms — in other words only 2% of the market share.

The lack of large, full-service accommodations forces convention and event planners to utilize eight to 10 hotels for room blocks, Dean Dennis said.

Dennis, who is the senior vice president and general manager of Renasant Convention Center, said the need to use so many hotels for room blocks has continued to be the convention center’s “Achilles' heel.”

Not having another 400- or 500-room hotel to accommodate a room block effectively between one or two hotels puts the convention center at a disadvantage, Dennis said. It essentially handicaps the convention center’s ability to grow and bring in more business.

Between June 2022 to June 2023 the Renasant hosted 152 events with a total of 340 days where at least one event was held in the building. Those 152 events, Dennis said, account for bookings that require room nights. In total, the convention center was responsible for 72,240 direct hotel room bookings and $60 million worth of economic impact, according to a 2023 report.

In comparison, 2021 yielded 52,000 direct hotel room books with $41 million worth of economic impact, according to convention center annual reports.

Dennis said if another large-service hotel was added Downtown that direct hotel room bookings, events and economic impact would all increase significantly.

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'Smaller hotels don’t help'

“Five 100-room hotels are not the same as one 500-room hotel next to the convention center,” Pinkwoski said.

In October 2022, the Center City Revenue Finance Corp., an affiliate board of the DMC, approved a 30-year PILOT for a $226 million renovation at the Downtown Sheraton Hotel. The 600-room hotel, located at 250 N. Main St., is adjacent to the Renasant Convention Center. The renovation is expected to take 18 months to complete and includes the potential construction of a new 300-room tower expansion.

The consensus between Tabor, Dennis and Pinkowski is the renovation is long overdue. However, the need for another large-scale hotel remains.

“Smaller hotels don’t help,” Tabor said.

Pinkowski said there is concern over the number of small hotels in a market. While more rooms are an overall good addition to the market, it can cause saturation and make it more challenging for a full-service hotel to enter the market. Any hotel coming into the market is going to need assistance and financing, he said.

Memphis Tourism CEO Kevin Kane doesn’t believe the market is at a point of cannibalizing itself yet, but the need for larger options has remained.

Kane added that given market conditions any 400-plus room hotel is going to require public assistance.

“Even when market conditions are favorable 400-room hotels are still difficult to finance,” he said.

The most recent version of that was the Grand Hyatt public-private partnership that fell apart after the bond market created a $5 million gap in financing. Prior to that the Loews hotel deal was called off in February 2022.

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Shelby County, Memphis travel spending increased in 2022

Despite the lack of a full-service hotel, Shelby County’s tourism figures are increasing.

According to the Tennessee Department of Tourism Development’s 2022 Economic Impact of Travel report, Shelby County saw a 16% increase in visitor spending from 2021 to 2022. This included a 23% bump in lodging revenue and a 14.5% increase in food and beverage sales. Shelby County’s $4 billion in visitor spending was second in the state behind only Davidson County.

According to an August 2023 STR and CoStar hotel industry report from STR vice president of analytics Isaac Collazo, Memphis room demand has increased from 5.9 million in February 2020 to 6.1 million in July 2023. In terms of room demand the Memphis market has been outperforming the nation’s top 25 markets since 2019. The market has seen 38% recovery since 2019, however Memphis’ central business district has only recovered 5%, according to the report.

Tabor said the Downtown occupancy rate has remained between 62% and 63% throughout 2023. That figure peaked in July at 67%.

“July was good, but it is the only shining month we’ve had all year,” he said.

Since 2020, leisure travel has been a driving force in Memphis’ recovery. Kane said leisure travel has been a large reason why Memphis was able to bounce back so quickly compared to other markets.

According to Memphis Tourism’s 2022 annual report, the Memphis metropolitan area had 11 million visitors and accounted for 6 million hotel rooms sold. More than half of all visitor traffic was from regional markets located between 100 to 500 miles from the Memphis metro.

Tabor said he expects occupancy and demand to decline over the next few months throughout Downtown. Part of that is due to upcoming shoulder season (which is historically a slow period before peak season) and an estimated decline in leisure travel, he said.

If that decline happens, Tabor also expects visitor spending and lodging for the county to plateau. That decline is likely to continue Downtown the longer the convention center hotel void isn’t filled, he said.

Tabor added that the Memphis in May festival is a lingering question mark for the market.

“For 30 years Memphis in May was the No. 1 room generator, until last year,” he said.

Tabor said the month-long festival usually creates an 80% occupancy rate. This year that figure dropped to 60%.

Following this year’s festival, Memphis in May and the Memphis River Parks Partnership have engaged in a public and legal dispute over damages caused at the recently renovated Tom Lee Park. The result has left the future of Memphis in May’s Beale Street Music Festival and World Championship Barbecue Cooking Contest in limbo.

Potentially losing that Memphis in May business is going to be very difficult to make up, Tabor said.

Neil Strebig is a journalist with The Commercial Appeal. He can be reached at neil.strebig@commercialappeal.com, 901-426-0679 or via X/Twitter,@neilStrebig

This article originally appeared on Memphis Commercial Appeal: New Downtown Memphis hotels in the works, but are they the right fit?