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Some Feel Adding 3,000 Hotel Rooms in Downtown Indianapolis
 Is Too Much, Too Fast, Creating a Glut of Rooms
By Jeff Swiatek, The Indianapolis StarMcClatchy-Tribune Regional News

Aug. 4, 2007 --Plans to add 3,000 hotel rooms in Downtown Indianapolis have hoteliers and others concerned that the influx is too much, too fast, creating a glut of rooms.

If carried out within the next three years, the 11 hotel projects under way or on drawing boards would increase to 9,000 the number of rooms, bringing the total number of hotels to 35. This sudden expansion could ignite rate wars that might force some hotels out of business. It could also send others scrambling for nontraditional sources of income and could hurt suburban hotels trying to compete with Downtown.

The head of the Indianapolis Convention & Visitors Association, which pushed for the city to subsidize construction of what would be the city's largest hotel, a 1,000-room JW Marriott, now wonders whether the wave of new development could be too much of a good thing.

"We need to be cautious about doing too much and moving too fast," said Bob Bedell, the association's president. "We might be getting a little ahead of ourselves."

Jim Garrard, the city's economic development director, said city officials won't try to block any hotel projects out of concerns that the market will become overloaded. The city has a stake in what happens Downtown because it's agreed to spend at least $48 million in public money to subsidize the JW Marriott.

"It could be difficult for some of those hoteliers, I suppose," he said, but "the market will eventually bear that out."

The hotel boom is unprecedented, not only for its scope, but also because it could bring new hotel players to Indianapolis. From the 29-story JW Marriott that would loom above Victory Field to a 150-room boutique hotel proposed by Aloft outside the main entry to Conseco Fieldhouse, the new lodging spots bring different brands to a market shaped by mainstream names such as Hilton, Hyatt and Westin.

Spurring the development are the doubling in size of the Indiana Convention Center and construction of the nearly $700 million Lucas Oil Stadium.

But those projects aren't expected to generate enough new visitors to justify 3,000 new hotel rooms, officials said.

Bedell said the Convention Center expansion is expected to increase demand for hotel rooms by 125,000 to 150,000 room nights a year, a volume of business that could be served by one or two hotels of fewer than 1,000 rooms.

The building boom comes as Downtown hotel occupancy rates are rising and room rates are going up.

Occupancies for the first six months of this year hit 69.7 percent Downtown, compared with 66.4 percent for the same period last year, Bedell said. Average room rates, meanwhile, have jumped to $142 a night, up 5.2 percent from a year ago.

Tim Dora, a principal of Dora Brothers Hospitality of Fishers, said he doubts all of the proposed projects would end up being financed. "Lenders are going to ask some questions . . . and start to wise up."

Most of the new projects look to sign on smaller, lesser-known hotel brands, and they are the ones that find it toughest to get financing, said Dora, whose company operates a Holiday Inn Express at 401 S. Missouri St., near Lucas Oil Stadium, and is building two more hotels nearby.

But several of the planned projects have financing lined up and have teamed with big-name brands, such as the JW Marriott project at Washington and West streets that includes three smaller hotels with 568 rooms.

When that $325 million, four-hotel cluster and possibly others open in coming years, a rate war could break out, Dora said. "I think rates will soften up because people will be more aggressive trying to book business."

Even so, most of the planned hotels won't open until 2010, giving the market three years to grow larger and diminish the competitive impact of the new hotels.

"When you're talking 21/2 years or more outward and the properties are not in the ground yet, there are all sorts of things that can happen," said Patrick Ford, president of Lodging Econometrics, a Portsmouth, N.H., hotel consultant.

"To me, it's not alarming," Ford said of the impact of the new Downtown hotels.

Stephen Alexander, an Indianapolis architectural design company president who's co-developing West Merrill Tower, a 200-room hotel near Lucas Oil Stadium, said he's confident that its location -- a block away from the new home of the Indianapolis Colts -- will draw a steady stream of guests and ensure its financial success.

"I think it's a very good location for a project like this," he said.

Even so, his $40 million-plus project won't be able to lock up financing until it completes a market study, which Alexander hopes will find ample demand for new hotel rooms. The study is being done now by an Ohio consultant, Alexander said.

New Downtown hotels pose a threat to suburban hotels, too. Outside Downtown, hotel occupancy rates are running about 60 percent, nearly 10 percent lower than Downtown, said hotel consultant Tim Worthington, managing partner of the Worthington Group in Indianapolis.

"They've taken (business) out of the suburbs," he said of the Downtown hotels that have opened in the past decade. When big groups look to book rooms in Indianapolis, "the focus is on Downtown," he said.

Dale McCarty, general manager of the Westin Indianapolis, said large Downtown hotels like his depend on convention business and group bookings for about 75 percent of their business. The individual-traveler market makes up most of the rest of the bookings, but that part of the market has been stagnant for several years, he said.

To boost revenue, he said, hotels are "being creative" by selling guests spa treatments, suites instead of regular rooms and extras like high-speed Internet connections. As new hotels open Downtown, the pressure to sell such extras to guests is likely to increase, he said.

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To see more of The Indianapolis Star, or to subscribe to the newspaper, go to http://www.IndyStar.com.

Copyright (c) 2007, The Indianapolis Star

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