June 27–NEWPORT NEWS — Area hospitality officials are taking note of a recent round of hotel foreclosure auctions occurring in Newport News, many questioning the health of the city’s overall hotel industry.
“It’s never a good thing when a hotel fails and winds up in receivership,” said Maureen Coon, president of Newport News Hospitality Association on Thursday. “Other than retail, there have been no new demand generators in recent years.”
Newport News, the Commonwealth’s fifth-largest municipality, has seen a wave of hotel foreclosure sales in recent months — a recent trend that has worried long-time hoteliers and hospitality officials.
Earlier this week, a Chesapeake-based LAP Groups purchased the 101-room Mulberry Inn and 57-room Holiday Inn Express at 16890 Warwick Blvd. in a block auction for $4,000,005, said Sanjay Patel, president of the firm’s retail and petroleum operations.
LAP Groups owns and operates 12 hotels across the Southeast and Hampton Roads, including operating a 20-year long-term lease for the Grand Ocean Hotel in Virginia Beach. The group also owns and operates a number of Happy Shopper gas station and convenience stores across the region, as well as several Subway, Taco Bell and Tropical Smoothie Cafe franchises.
Patel said officials expect to close on the property during the first week of July.
The sale marks the third and fourth hotels, respectively, that have been sold in a foreclosure auction in Newport News in recent months.
A North Carolina investor Dilip Mehta secured the top bid of $2.57 million for the Point Plaza Suites and Conference Hotel at 950 J. Clyde Morris Blvd. In late May, Virginia Beach-based Plaza Resort Management submitted the winning bid of $5.11 million to purchase the Holiday Inn and Suites at 941 J. Clyde Morris Blvd., a property located directly across the street from the Point Plaza Hotel Suites and Conference Center.
Coon said the recent spike in foreclosure auctions are a two-part problem facing Newport News hoteliers: increased hotel fees; and an economy, while showing signs of recovery, that continues to lag for the industry.
Newport News charges an 8 percent transient/lodging tax on all hotels in the city, said Newport News Commissioner of Revenue Priscilla S. Bele.
The tax generated more than $3 million during the 2013 fiscal year, according to city tax records.
However, fiscal year-to-date, the lodging tax has generated close to $2.8 million, nearly $490,000 shy of its estimated revenue of nearly $3.3 million the city projected for the end of fiscal year 2014.
Fiscal year 2014 officially ends June 30.
But Newport News’ lodging tax coffers could receive an additional cash deposit at the beginning of fiscal year 2015 as part of the city’s recently approved budget.
Effective July 1, all hotels in the city must levy a $1 per day charge as part of the Newport News’ lodging tax — a move that could generate close to $800,000.
“This brings us in line with all other area jurisdictions,” said Newport New City Manager James M. Bourey. “There are some that are higher.”
This is not the first time a $1 flat lodging fee has been proposed in the city.
Newport News officials first proposed a flat-rate daily tax last year, but the city council rejected it after hotel owners objected.
The per diem charge is a permanent one, Bourey said. He said it is fairly standard for cities and counties to charge both a flat-rate daily tax as well as a percentage of the room charge.
Coon said the foreclosure auctions should be an obvious sign to city officials of the area’s struggling hotel industry, adding that additional taxes could drive hotel business away from Newport News.
“The hotel industry is an industry that is struggling with the continue effect of sequestration, and the reduction of government meetings and travel,” Coon said. “Additionally, we continue to see increases to our industry in new taxes implemented on our guests.”
Meanwhile, LAP Groups is not ready to immediately release plans for its newly acquired Mulberry Inn and Holiday Inn Express.
Patel said officials plan to conduct a three- to six-month evaluation on the properties, which could possibly result in the rebranding the two properties under a new hotel flag. He said despite the city’s taxes and new fee, the area’s military bases and retail growth make Newport News a viable investment for his firm.
“The pricing is really good,” Patel said of the hotels’ price. “Normally, for this kind of package it would go for $8 to $10 million, so we feel we got them for a good price. Plus the distance to Fort Eustis and Langley [Air Force Base] made it a good investment.”
Reporter Dave Ress contributed to this story. O’Neal can be reached by phone at 757-247-4744.
