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Boston Report
2002 National Lodging Forecast
Ernst & Young LLP
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Introduction

With the city�s economy weathering the economic recession reasonably well, with corporate lodging demand reduced from recent years but still healthy and with inevitable reductions in the new supply pipeline, Boston�s fundamentals are anticipated to flatten for most of 2002 with a modest rebound occurring late in the year.

Boston Report

Source:Smith Travel Research,Ernst &Young LLP

Cambridge, which experienced a significant commercial-area expansion in the 1990s as a high technology and biotechnology center, has been most heavily impacted by the dot com fallout. The ongoing difficulties the city�s lodging supply faces in maintaining its corporate demand base, as well as ensuring continued strong leisure segment demand during vacation periods, will be somewhat alleviated by moderate new supply and the absence of any large new lodging projects anticipated to come online within the next 12 months.

Given the current financial realities of the lodging industry and the deep reduction in corporate travel expenditures during the fourth quarter of 2001, the critical development path of several important projects has been disrupted. The Boston Convention and Exhibit Center (BCEC), originally scheduled to open in early 2004, has been postponed at least until mid to late 2005, and the development of the Sheraton headquarters hotel continues to face uncertainty.

Major Demand Changes

The Boston economy continues to be fueled by corporate demand from its traditional industries, with leisure and small corporate group demand having rebounded from the low points of late last year, despite the events of September 11. With the economy faltering, Greater Boston Convention and Visitors Bureau representatives report that convention and larger group demand levels have been moderately impacted, particularly given the uncertainty over the BCEC facility and lodging situation beyond the next two years.

Office development continues in the financial district and in South Boston, with the completion of the Seaport Center, and the ongoing construction of One Lincoln Street, a 36-story office tower located on the edge of Chinatown. A $600 million commercial complex over South Station is in the planning stages, though the project has likely been at least modestly delayed by the softened economy. A joint venture between Hines and TUDC, Inc., a Tufts University subsidiary that was awarded rights to the site in 1991, was anticipated to open in 2004, though it is likely the project will be delayed for approximately 12 to 18 months. The 2.1 million square foot complex would consist of a 47-story office tower, a nine-story office research building, and a 500-room hotel. Also, New England Development has expressed interest in replacing Anthony�s Pier 4 restaurant with a one million square foot mixed-use development on the restaurant�s 5.5-acre site, consisting of 385,000 square feet of office space and 200 residential units. The state of the economy, however, is likely to dampen the enthusiasm for such plans, at least for the next nine to 12 months.

Major Supply Changes

The 1997 convention center legislation that determined the levels of lodging inventory necessary to make the BCEC marketable called for the addition of almost 4,800 rooms to the marketplace before 2004. Since 1997, more than 2,200 rooms have been added within Boston�s city limits with other projects under construction or in permitting/planning. 

Recent significant additions to supply include the 191-room Ritz-Carlton Boston Common, the 92-room Best Western Roundhouse near the Boston Medical Center, and the 600-room Hilton Logan Airport, which replaced the 513-room Ramada Logan Airport. The 191-room Ritz-Carlton on the Common is part of a new $514 mixed-use development which is Boston�s largest commercial development, including 63 extended-stay apartments, 309 condominiums, 1,100 underground parking spaces, restaurants, a 100,000-square foot health club and Loews movie theatres. Meanwhile, the Ritz-Carlton Boston, located across the Boston Commons and Public Gardens from the new development, closed in October 2001 to undergo a $45 million renovation to its guest rooms and public spaces. It is due to reopen late 2002.

Also under construction and scheduled to open in Spring 2002 is the 190-room Nine Zero Hotel.

Other projects in planning include a 272-room Embassy Suites in East Boston, a 390-room Loews Boston hotel located in the Theater District, a 185-room Regent luxury hotel to be developed on Battery Wharf, a 168-room Homewood Suites in Charlestown and a 240-room Comfort Inn located near the Boston Medical Center. The lodging component of Pritzker�s Fan Pier project, a Grand Hyatt containing 600 rooms, is anticipated to arrive no earlier than 2005 or 2006, the final timing of which is somewhat dependent on the BCEC development timeline and ongoing challenges to obtain financing in this difficult economic environment.

Discussions continue regarding the development of a luxury hotel in the Back Bay and the Prudential Center. Also, Millennium continues to consider plans for a major complex in the Back Bay that would require air rights over the Massachusetts Turnpike, however such a project is unlikely to begin to take shape within the next nine to 12 months.

Paul Griesmer, Boston
Aaron Greenman, Boston 

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Contact:
ERNST & YOUNG
www.ey.com/us
M. CHASE BURRITT
National Director, Hospitality Services
(305) 358-4111

BOSTON
Paul Griesmer
Aaron Greenman
(617) 266-2000

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Chuck Bedsole
(214) 969-0900

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Jeff Dallas
(213) 977-3200

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Mark Lunt
(305) 358-4111

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Michael Fishbin
Georgi Fsadni
Brian Tress
(212) 773-4900

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Bruce Kaminsky
(215) 448-5000

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Michael Straneva
(602) 508-2600


Also See 2002 National Lodging Forecast / Trends, Outlook, Market Segment Reports / Ernst & Young LLP / Feb 2002
2002 California Lodging Forecast / Ernst & Young LLP / Feb 2002
2002 Manhattan Lodging Forecast / Top 10 Thoughts for 2002 and Beyond / Ernst & Young LLP / Feb 2002
Canadian Hotel Investment Report 2002 / Colliers International Hotels / Feb 2002


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