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Half a Dozen Hotels Planned for Downtown Philadelphia and Airport Area;
Downtown Occupancies Running at a Healthy 72-73% This Year

By Tom Belden, The Philadelphia InquirerMcClatchy-Tribune Business News

Aug. 9, 2006 - It's not the building boom of the late 1990s. But after five years of a shrinking supply of rooms, new hotels are coming to Center City and the airport area.

Construction is under way on only one hotel, a 92-room Four Points by Sheraton, scheduled to open this winter in an eight-story building at 1201 Race St., behind the Convention Center. Four Points is a mid-price brand in the same category as the nearby Hilton Garden Inn and Courtyard by Marriott.

Half a dozen other hotels could open in the next two to four years. The planned expansion of the Convention Center and a strong level of business and leisure travel in the region are driving the growth, industry officials and lodging consultants say.

"Right now we've got the fortunate problem, on Tuesday, Wednesday and Saturday nights, that Center City hotels are typically full," said Peter R. Tyson, vice president of PKF Consulting in Philadelphia. "We've got occupancy levels of 72, 73 percent this year, which is considered a healthy occupancy and generally supportive of expansion" of a region's hotel supply.

The new hotels will be small to medium-size, at least until expansion of the Convention Center begins. Some of the hotels would be part of condominium developments, and their construction would depend on continued strength in the condo market.

Besides the Four Points by Sheraton, Starwood Hotels & Resorts Worldwide Inc., which owns the Sheraton and Westin brands, has announced plans for two other lodgings.

A W hotel, an upscale brand aimed at the fashion-conscious, will be installed in the lower floors of a 30-story condo building at the southwest corner of 12th and Arch Streets, Starwood and the developers, Urban Residential of New York and Philadelphia's Parkway Corp., announced July 12. The 250-room hotel, across Arch Street from the Convention Center's main door, is expected to be completed in 2009.

Also planned, near Philadelphia International Airport, is one of the first aloft hotels, a lower-price, limited-service offshoot of W Hotels. The hotel (spelled with a small a) will have about 135 rooms with nine-foot ceilings and large windows, giving them the feel of loft apartments, Starwood officials said. The hotel, set to open in late 2007, would be on the same site as the Sheraton Suites and Four Points hotels, at Island Avenue and Route 291.

Longer range, industry officials said developers were considering whether to build hotels at 24th and Walnut Streets and on Front Street in Old City. Another hotel could be part of a retail and residential project on the northwest corner of 16th and Vine Streets that would include a Whole Foods market, which would be relocated from 20th and Callowhill Streets.

The University City Science Center also plans to include a hotel in an expansion of its facilities on Market Street, near Drexel University and the University of Pennsylvania, the Science Center said in May.

Also, three of the four applicants for casino licenses on the Delaware River waterfront in Philadelphia say 500-room hotels could be built in the second or third phases of their projects. Construction of those hotels would not be expected to start before 2010.

The hotel envisioned for 24th and Walnut would be in an eight-story building formerly occupied by the Rosenbluth International travel agency. It would be part of Mandeville Place, a 43-story luxury condo, to be built on a parking lot just north of the building and ready for occupancy in mid-2008. The real estate was not included when the Rosenbluth and Block families who owned the travel business sold it to American Express Co. in 2003.

"We're exploring a number of possibilities, including a hotel," said Charles Block, a family member who is leading the project. The location is good for a hotel because it would be close to Amtrak's 30th Street Station and convenient to both University City and Center City, Block said.

The hotel-development scene is quite different from what it was in the mid-1990s through 2001, when more than 3,000 new hotel rooms opened in Center City. The central core needed more rooms then to accommodate the 2000 Republican National Convention, and the administration of Mayor Ed Rendell supported the effort by ensuring property-tax breaks and loan guarantees from the city for six new hotels.

But after peaking at 11,500 rooms in 2002, the supply has dwindled to just more than 10,000 as several building owners cashed in on a hot real estate market and converted their properties into condominiums or other uses.

The hotels that may be built in the next few years would all have 250 or fewer rooms. Developers and hotel operators would not consider building a larger, convention-oriented hotel of 500 to 1,000 rooms until construction of an expanded Convention Center, expected to start next year, actually begins, said Jack Ferguson, executive vice president of the Philadelphia Convention and Visitors Bureau.

Those already in the hotel business are looking forward to the Convention Center expansion, but are opposed to giving developers the same kind of tax breaks and loans offered in the 1990s, said Ed Grose, executive director of the Greater Philadelphia Hotel Association. "We want the market to dictate how many hotel rooms there are," he said.

The smaller number of available rooms has helped drive up the cost to stay in one. In the first half of 2006, the average daily rate at Center City hotels was $153, 8 percent more than in the same period last year, according to Smith Travel Research.

But the rising daily rate has not hurt Philadelphia's ability to attract meetings, conventions and trade shows -- only the smaller supply of rooms has, Ferguson said.

Over the last 12 months "we turned away a lot of business because of availability of rooms," he said. "It wasn't the rate."

The developers said that the W hotel and the one attached to Mandeville Place would offer luxury accommodations, in keeping with the type of condos above them. But hotel consultants noted that financing for a luxury hotel is virtually impossible to find unless the project includes condos.

W hotels in particular are "increasingly being developed with a residential component," said Warren Marr, director of the PricewaterhouseCoopers Philadelphia office. "The sales of the condo units help support the financing of the overall project."

But in the moderately priced segment of the market, the developer of the Four Points by Sheraton has a different idea to supplement demand from conventioneers and other travelers.

Henry Lam, operations manager of Lam's Realty Corp., whose company also owns the Travelodge hotel at 1227 Race St., said the company might build an addition with meeting rooms and banquet space on the roof of the Four Points, to meet the needs of a nearby niche market.

"In Chinatown, there are a lot of weddings, and many of them now are in restaurants," Lam said. "We hope we can cooperate, with the restaurants still providing the food. But we would give people an alternative, a new choice."

Contact staff writer Tom Belden at 215-854-2454 or tbelden@phillynews.com. Inquirer staff writer Suzette Parmley contributed to this article.

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Copyright (c) 2006, The Philadelphia Inquirer

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