Rising hotels face deflation of bust
April 10, 2016 at 12:03 a.m.
CUERO - It is not stacked rigs or idled oil equipment that greet visitors to Cuero as they drive south along U.S. Highway 183 but row after row of empty hotel parking lots.
And it makes some wonder about the need for the four-story Tex Inn hotel as it rises into the sky at the north edge of Cuero.
The Tex Inn and Fairfield Inn are two hotels currently under construction in Cuero, both of which began during the Eagle Ford Shale boom but are now looking at completion dates ranging from 2016 to 2017. The Eagle Ford has been undergoing a significant downturn in the oil industry, what some have called the worst oil bust in history.
Oil prices fell from a high of $110 a barrel in June 2014 to a low of $27 a barrel in January 2016. They currently hover at $40 a barrel.
Despite the downturn, Gaetan Pelletier, managing member of Vista, Calif.-based Pelletier Management and Consulting, is confident his Tex Inn will wow customers, adding that its three-bedroom, two story penthouses will be able to hold "a small baseball team."
"It is going to be the largest - I don't think you have a property that big in Victoria, but (it will be) the largest of all the Eagle Ford motels," Pelletier said.
The 172-room building will feature an exclusive restaurant and extended stay rooms with kitchens and refrigerators. It is at the tail end of a construction boom that washed over Cuero during the Eagle Ford's expansion.
The Fairfield Inn and Suites will be a prototype model with 81 rooms, said senior Civitas Capital associate Melanie Pugmire.
"We had to cease construction last November as we had issues with our general contractor, who ultimately sought bankruptcy protection," Pugmire said. "We have been doing minor work since then but expect to fully remobilize in the next week or two and complete the project by Sept. 1."
The current economic situation has not been lost on the investment group, which Pugmire said recently opened a Fairfield Inn & Suites in Cotulla and is constructing two more in the West Texas oil field of the Permian Basin.
"We certainly are aware of the challenges that lay in front of us given the downturn in drilling activity and the local supply," she said. "While we started construction on these hotels in a time of better industry dynamics, Civitas and its investors have a long-term perspective and believe the Marriott branding and quality of the facility will ultimately allow us to be successful."
But the hotels are set to open at a time when some of their competitors are sitting at 35 to 50 percent occupancy and hotel/motel tax receipts have plummeted. Oil equipment sits stacked in yards throughout the Crossroads, and local businesses have had to cut dozens and sometimes hundreds of jobs.
The oil downturn does not faze Pelletier.
"Cuero has a number of things going for it," he said. "Geographically, it has two main corridor highways that run through it. It's fairly heavily populated with traffic, especially on the highway that we're on."
The U.S. Highway 183 corridor the Tex Inn sits on has five other hotels or motels. Two more sit on the U.S. Highway 87 North approach from Victoria.
Pelletier is betting his hotel will be positioned to take advantage of the next upswing in the Eagle Ford - and to compete with other, larger metropolitan areas.
"I suspect we would attract business from other communities as far as the county of Gonzales because of the product that we will deliver," he said. "I know for certain that the next push on oil, (which previously) was sending business to Victoria - I think that Cuero's going to be able to hold onto that business."
Cuero Economic Development Corporation's Executive Director Pat Kennedy said plans for two other hotels on the eastern side of Cuero - a microtel and a privately funded building behind the new strip mall - appear to have been put on hold.
The strip mall's owner, Rocky Reese, said in February that the future of the pad site set aside for the hotel is uncertain in the wake of the Eagle Ford oil bust.
"Oil activity slowed, and some of these hotels that are under construction now got ahead of us, and so we decided that we weren't going to do that project right now," he said.
Pelletier is one investor who beat Reese in the building process. He and his company have been developing the property since 2013 but were slowed by the Eagle Ford oil boom and a rush of building applications that swamped Cuero's city government. Pelletier said he has been able to work with city and development officials to create a plan to open his business in three phases.
The first phase, located on the west side of the building, will open at least 70 rooms. But Pelletier said the infrastructure required for the building will be fully complete at the opening of the first phase in order to meet building and fire requirements. He hopes the entire building will be open by the end of 2017.
The downturn has hit hotel/motel tax receipts particularly hard. Hotel/motel tax receipts totaled $87,700 for the first quarter of fiscal year 2015-2016, down 55.1 percent compared to the previous year's first-quarter results. That is below the $95,700 in hotel/motel tax receipts for the first quarter of fiscal year 2012-2013, the oldest available data.
Kennedy said his organization, which relies on revenues from both the hotel/motel tax and sales tax, has adjusted its budget to reflect the reality of the oil downturn.
"We're hurting, but we're not hurting as bad as some other folks," Kennedy said.
Kennedy added that interest in building another hotel on the northern side of town appears to have dissipated and private industry appears to be adjusting to the new reality.
"I believe that it will take care of itself in terms of their philosophies, their rates and who they will be advertising to while they wait for the change," he said.
The continued hotel construction has baffled Pradipkumar Vora, owner of Wildflower Inn & RV Park.
"The oil boom, you're supposed to (look at) the past about what happened," he said. "They don't see all that, and if I have a bunch of money in my pocket, that doesn't mean that for 6,000 people, I open a 172-room (hotel). I can open a 172 room hotel near SeaWorld or Disneyland, something like that, where I know the people are going to be there in and out ... The city has to think about this before it gives them permission."
Vora moved to the U.S. from Bombay, India, in 2001. He said he was able to pay off his mortgage for the Wildflower, which he bought in 2007, during the oil boom. Vora also sold a 3-acre plot north of the Wildflower to the developers of the Fairfield Inn for more than $500,000.
But now, the Wildflower Inn sits at 50-percent occupancy, while Vora's RV park only has a dozen of its 80 spots filled.
"They shut down all the oil wells, and so people had to go," Vora said. "I always tell my guests: You make money, I make money, so I pray for you."
Executive Inn manager Esther Kolterman said with the oil field workers gone from the picture, the hotels have been left vying for the attention - and wallets - of companies and people traveling through Cuero.
"A year ago, we were almost at full capacity. We were anywhere from 85 to 100 percent capacity. It's taken a toll," she said.
Kolterman estimated her business now sits between 45 and 50 percent occupied.
Pelletier said his vision is toward the future, not the present, pointing to natural gas production as one of the economic drivers he thinks will benefit Cuero. Pelletier is preparing his property for the local resurgence.
"You can't build for today; you have to build for tomorrow," he said. "If you're ready for tomorrow, whether it's in the hospitality industry or whatever else it might be, then the object is going be that a well prepared mind is the one that's going to benefit the most."