On the border of West Texas and Mexico, between the Franklin Mountains and the Rio Grande, lies the sixth-largest city in Texas and one of the fastest growing cities in the U.S. El Paso and its Mexican counterpart, Juárez, form an expansive population of over two million known as the "Borderplex." Since World War II, the area's focus on agriculture, mining, and textile manufacturing have given way to expansive military and maquiladora operations, and a diversifying business sector and expansion into the healthcare industry are gaining new prominence. The future success of El Paso—and by extension its hotels—will rely heavily on the growth at Fort Bliss, maquiladora productivity, medical-facility expansions, and the resurgence of Downtown.
Fort Bliss Expansion
The 1.12-million-acre Fort Bliss is currently undergoing a major expansion in preparation for the arrival of the 1st Armored Division. Some 35,000 soldiers are expected to be relocated to Fort Bliss by 2012, and the base is expected to become the nation's fourth-largest Army installation (by population) by 2013.
A six-year, $4.1-billion construction boom at Fort Bliss began in 2006 and will ultimately result in a major transformation of the facility, including new offices, aircraft hangars, arms rooms, and barracks, as well as new dining, fitness, medical, and maintenance facilities. A planned highway will traverse the middle of the base, connecting it to western El Paso and numerous range projects that will serve as the base's primary training facilities. The expansion of Fort Bliss is expected to generate approximately 40,000 jobs and have an economic impact of $21 billion on the city.
Projections after BRAC decision
Source: The Greater El Paso Chamber of Commerce
The maquiladora industry, which employs approximately 2.4 million people, is an economic anchor for El Paso and Juárez. The Mexican government began the program in the 1960s to increase employment along the northern Mexican border. Under the maquiladora system, companies can incorporate in Mexico, import components for assembly or manufacturing, and export the finished products back to foreign markets. Fortune 500 companies that have set up operations in El Paso and Juárez include Delphi Corporation, Visteon Corporation, Johnson Controls, Inc., The Boeing Company, Cardinal Health, and Siemens AG.
Largely dependent on the U.S. economy, maquiladora production has wavered over the past decade. Currency exchange fluctuations and increasing low-wage labor opportunities overseas have also taken their toll. Recent setbacks in the U.S. auto industry due to rising oil prices have been the leading cause of maquiladora layoffs and decreased production in 2008. As the U.S. economy continues to struggle, maquiladoras will rely heavily on European exports. As a major demand generator for El Paso hotels, the success of maquiladoras will be of significant concern for hoteliers going forward.
Medical Facility Expansions
Expansion projects at the Thomason Hospital and the creation of Texas Tech's Paul L. Foster School of Medicine are more encouraging. The latter, expected to open in the fall of 2009, will be the first four-year medical school along the U.S./Mexico border. A recent study1 predicts that local business revenues will jump from $55.9 million to $1.3 billion over the course of ten years following the opening of the new school. The $250-million expansion of Thomason Hospital will create a new children's hospital, which is expected to open in 2011. Thomason Hospital is also committing $12.3 million for the creation of a new diagnostic clinic in northeast El Paso. These new medical facilities should foster more hotel demand in El Paso through visiting patients, doctors, and other medical professionals, as well as create opportunities for supporting industries.
Downtown El Paso
After three decades of efforts to revitalize and restore El Paso's Downtown, city officials are finally optimistic about its future. Riding a wave of private investment and successful city leadership, Downtown El Paso is poised to return as an important commercial hub for the Southwest. Major projects include the conversion of the existing International Hotel into a 200-room DoubleTree Hotel and the revitalization of the Mills and Centre office buildings.
As part of the downtown resurgence, the historic El Paso and Southwestern railroad depot is expected to be renovated and transformed into a dining and museum facility. The plan will also introduce designated shopping districts, diverted transportation routes, new parking structures, and an open-air dining facility, as well a number of historical preservation projects.
Although still in its early phases, the results of the plan can already be seen. Property values within a 288-acre section of Downtown, defined by a new tax-reinvestment district, have risen nearly 40% to almost $446 million over the past two years.2 Convention planners are also optimistic about the future of Downtown El Paso and what effects the revitalization and opening of the DoubleTree Hotel will have on convention numbers. According to the El Paso Convention and Visitors Bureau, the United States Bowling Congress (USBC) Women's Championships are expected to be held at the El Paso Convention and Performing Arts Center in 2010. The USBC Women's Championships are known to attract between 8,000 and 13,000 five-player teams each year, which could produce an economic impact between $45-50 million and mean major business for area hotels.
El Paso's Lodging Market
Conrad Hilton opened his first high-rise hotel in El Paso in 1930, and the lodging industry has played an active role in the city's economy ever since. Hotel demand has fluctuated over the past decade with varying troop levels at Fort Bliss and the maquiladora industry's volatility, but El Paso's location along Interstate 10 and numerous construction projects throughout the city contribute strongly to base demand. Average rate in the market has continued to experience healthy growth overall.
There are approximately 82 hotels and motels currently operating in El Paso, representing roughly 8,520 rooms. The past two years have seen four new hotels: the Homewood Suites, the Wingate by Wyndham, the GuestHouse International Suites, and the Sleep Inn & Suites. According to local hoteliers, these 325 additional rooms have been largely absorbed, and occupancy through October of 2008 actually improved as a result of escalating government-related business. The big question going forward is whether El Paso's growing economy will be able to support the supply that's still to come. As the table below illustrates, eleven new hotels are slated to open in El Paso, representing an additional 1,205 new rooms.
|Location||Developer||Estimated Opening Date|
|600 El Paso Street||Jim Scherr||Spring 2009|
|Fairfield Inn & Suites|
|7514 Remcon Circle||WKM Companies LP||Summer 2009|
|SpringHill Inn & Suites|
|7518 Remcon Circle||WKM Companies LP||Spring 2009|
|Holiday Inn Express|
|7935 Artcraft Road||Visvas LLC||N/A|
|5034 North Desert Boulevard||N/A||N/A|
|Holiday Inn Express|
|6666 Gateway Boulevard East||Tharaldson Development Co.||N/A|
|Interstate 25/ Cohen Avenue||Cohen Hospitality Group LP||Fall 2008/Winter 2009|
|Hampton Inn & Suites|
|6411 South Desert Boulevard||Visvas LLC||N/A|
|Hampton Inn & Suites *|
|Interstate 10/Dieter Drive||The Summit Group||N/A|
|Courtyard by Marriott *|
|Interstate 10/Dieter Drive||The Summit Group||N/A|
|Four Points by Sheraton *|
|El Paso Airport||Vimla LLC||November 2010|
|Total New Supply|
* Denotes properties that are speculative and do not currently have building permits
As with comparable markets, the general consensus in El Paso is that newer, branded hotels will replace dated hotels and thereby increase average rates across the market. This scenario depends largely on El Paso's sensitivity to rate and how the current economic developments will actually impact the city. The continued influx of troops to Fort Bliss, the new medical school, the expansion of Thomason Hospital, and other residential and commercial developments in the area have left many developers and city officials optimistic about the future of El Paso. However, the uncertainty of the U.S. economy and the maquiladora industry could prove a serious obstacle for hotel operators. El Paso's hotel market is on the verge of a major transition, one that may lead to some instability in the short term as the new supply settles in but should provide El Paso with the potential for long-term sustainable growth.
HVS Dallas performs property appraisals, market studies, and other projects on behalf of lodging industry stakeholders throughout the United States. Please visit us at http://www.hvs.com/Offices/Dallas or call us at 972-899-5400 to find out how we can help with your next venture.
1 www.juarezelpasonow.com, October 2008 issue.
2 Hudson, Kris. "With a Little Help from Its Friends." The Wall Street Journal, July 28, 2008.