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Hotel developers eye high-speed rail hubs
December 19 2012

Hotel developers are keeping a close eye on high-speed rail development, as the potential hubs could draw travelers to urban city cores and outlying suburban areas.

  • The Obama administration invested approximately $8 billion of stimulus money into the high-speed rail program.
  • Real estate development company Akridge is working on a mixed-use development on top of the rail yards north of Union Station in Washington, D.C.
  • High-speed rail “could open up a market or expand a market that’s strong today, so a hotel would make sense there,” David Roedel of Roedel companies said.

REPORT FROM THE U.S.—While the development of a high-speed rail system in the U.S. is still in the beginning stages, the project—once completed—is likely to enhance connectivity, grow the economy and increase travel, sparking interest from hotel developers who will be looking to accommodate the inevitable influx of travelers across the rails.

Nancy Johnson, executive VP of development at Carlson Rezidor Hotel Group, said high-speed rail would be responsible for the “evolution of hotel locations,” connecting airport locations and high-speed rail stations to urban centers and suburban or rural locations along the track.

Johnson said hotel development that follows the evolution of high-speed rail could parallel Kemmons Wilson’s creation of the Holiday Inn hotels in the 1950s. By taking advantage of the then-budding U.S. highway system, Wilson put up hotels in areas that were once inaccessible to travelers. Johnson said the she predicts the same could happen for high-speed rail.

“Looking into the future, if the U.S. gets on a kick of revitalization that would be under mass transit, it would be developing airport locations and developing high-speed trains going across America to connect metropolitan areas,” she said.

Nancy Johnson
Carlson Rezidor Hotel Group

The Obama administration has been advocating a high-speed rail network for a few years, investing $8 billion of stimulus money into the program. At the beginning of December, U.S. Transportation Secretary Ray LaHood testified before the House Transportation and Infrastructure Committee hearing and said the administration is still focused on the 25-year $500-billion project.

“We’re not giving up on high-speed rail,” he said during the hearing. “The president will include funding in his budget. I think we’ll get there with public money, but in the absence of that, we’ll get there with private money.”

The first of these projects is the $68 billion rail linking San Francisco to Los Angeles, which is projected to take 15 years to complete the 520-mile line.

“This is going to be a game changer for California,” said Annie Parker, information officer at California’s High-Speed Rail Authority. “It’s difficult to travel back and forth (from San Francisco and Los Angeles). It’s going to make a big difference.”

The rail system will create a “friendlier urban center that is more sustainable,” Parker said.

“It will be a big benefit to do a lot of what the airport systems can’t do,” she added.

Evolving hotel locations
David Roedel, business development and acquisitions manager for New Hampshire-based hotel investment and management company Roedel Companies, said he is looking forward to the benefits of the high-speed rail on hotel development in the Northeast Corridor, noting a mixed-use development planned near the Westwood, Massachusetts, Amtrak station that stalled during the downturn.

“The rail station there is a good thing—especially how strong the market would be to build a hotel there,” he said. “From a development perspective, it’s an interesting and intriguing opportunity.”

David Tuchmann, VP of development at real estate development company Akridge, is working on a mixed-use development on top of the rail yards north of Union Station in Washington, D.C., a project that is part of Amtrak’s update to improving rail transit. The 3-million square foot Burnham Place project, which will include 500 hotel rooms as well as retail, apartments and offices, is a 20-year initiative and will be built in multiple phases.

The 3-million square foot Burnham Place project, which will include 500 hotel rooms, is a 20-year initiative and will be built in multiple phases.

“It will take a couple of decades; we’ll be building a neighborhood,” he said. The plan also allows for further growth, including high-speed rail along the Northeast Corridor. The project is expected to generate $14.3 billion in economic benefit to the D.C. area over the next 15 years, according to an Akridge news release in July.

“One of the major reasons we’re invested in this project is because we believe that rail travel is not only one of the most convenient ways to get around but will continue to grow,” he said.

Tuchmann said to maximize the value of their development and its impact on neighborhoods and the city, “you want to have a mixed-use program.” The synergy between office space, apartment, retail, food-and-beverage outlets, as well as hotels is attractive to tourists. A hotel, “which provides an 18 hour a day environment energizes the whole place,” and makes the other outlets, especially retail, more viable, he said.

David Tuchmann

Transportation-oriented mixed-use developments entitle developers to tax breaks, said Tom Hazinski, managing director of HVS convention, sports and entertainment facilities. But it also includes other travel incentives. 

“The fact that travel comes quicker, easier, cheaper—it’s more value for the dollar,” explained Hazinski. High-speed rail “will allow more people to travel. It would make meetings less expensive and encourage them to happen,” he said. “The overall impact would be positive for conferences.”

Hazinski added that reducing costs in transportation is advantageous to hotel development, highlighting the deregulation of the airline industry as a prime example of encouraging travel and cultivating hotel development.

“The same is true for rail,” he said. “If we come back to it, it’s another form of transportation that would make access quicker and easier, presumably to a lot of destinations to foster hotel development.”

Johnson, who blames urban sprawl for infrastructure inefficiencies in city centers, said high-speed rail “would be changing the prime location for a hotel. The infrastructure of the city would be much more concentrated and more efficient. You would see more concentration into a major city for the hotel industry.”

It will “pull travelers back to urban areas and city centers,” she said. “There’s a recentralization of communities and more people are headed back to metropolitan areas.”

“I think it will be less to do with the rail itself, but with the hotel market that the rail is going into,” Roedel said. “In the top 25 markets, there’s always going to be interest in hotels, and increased rail activities to bring people in your market are always positive.”

But there are opportunities beyond the top 25 into secondary or tertiary cities along the rail line. High-speed rail “could open up a market or expand a market that’s strong today, so a hotel would make sense there,” he said.

Because high-speed rail hubs most likely will be in downtown urban core areas, hotel development will be “good for urban development versus suburban development,” Hazinski said. “In the same way hotel developments crop up around airports, it might happen in urban areas.”

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