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Boom Turns to Glut for Providence, Rhode Island Hotels

By Benjamin N. Gedan, The Providence Journal, R.I.McClatchy-Tribune Regional News

April 14, 2009 - PROVIDENCE -- The investors who shoveled $11 million into the Hampton Inn & Suites on Weybosset Street like to remind guests that the high-ceilinged reception area was once a bank lobby.

But in this stifling economy, they might soon be comforted by its more recent use, as a chapel for Franciscan friars.

Providence hoteliers are struggling to fill rooms left vacant by the sudden drop in business travel and tourism. As they stumble, developers are putting the brakes on hotel projects, in some cases leaving vacant lots on the Renaissance City's choicest real estate.

The problem is being felt across the country. But it is particularly painful in Providence, where the number of rooms exploded by one-third in the past two years, leaving a bloated inventory at the worst possible time.

"It's a double whammy right now," said Jeffrey S. Pitt, general manager of the 136-room Radisson Providence Harbor Hotel on Providence's East Side.

In January and February, occupancy at the city's eight biggest hotels plummeted 16 percent, from 51 percent in 2008 to 43 percent for the same two months this year. That followed a 7 percent year-to-year decline in December.

The extreme drop is explained in part by the figure-skating tournament in February 2008, at the Dunkin' Donuts Center, that brought an avalanche of business to local inns and inflated last year's first-quarter figures. The New England winter is always a slow time for the hospitality industry.

Local innkeepers, however, say business in all categories has slowed. At the 80-room Hotel Providence, opened four years ago, the phones have quieted and traffic on the Web site has slowed. "It's just a horrendous time right now," said general manager Patrick L. Jordan. "I'm not aware of any indicators that travel is going to bounce back any time in the near future."

Investors could be forgiven for feeling misled. For years, as Providence became a more marketable destination, tourism officials complained about the scarcity of hotel rooms. Rhode Island's lodging-deprived capital, they argued, could attract far larger conventions if conventioneers were not shuttling to hotels in Warwick and Seekonk.

Their call was answered. In a building boom that equaled the city's ill-fated condominium binge, developers added 200 rooms to The Westin Providence, attached to the Rhode Island Convention Center, bringing its inventory to 564, and opened the 272-room Renaissance Providence Hotel in the former Masonic temple. The Procaccianti Group, the Westin's owner, also spent millions converting the Holiday Inn on Atwells Avenue into a Hilton.

Chasing historic tax credits and cheap loans, investors also announced plans for a luxury, 187-room hotel called One Ten Westminster; a 164-room Four Points Sheraton on Promenade Street; and a 168-room hotel to be built in the old power plant in the Jewelry District.

But the national recession, which began slowing economic growth in Rhode Island more than two years ago, has led some to question the wisdom of the hotel surge. After all, rather than seeing a spike in meeting traffic, the convention center has watched revenue drop 7.4 percent in the fiscal year that began July 1, 2008.

Business meetings still coming to Providence have logged lower attendance. There were 3,444 fewer room rentals by conventioneers from July 2008 to February compared with the same period a year ago, according to the Providence Warwick Convention & Visitors Bureau. In March, the New England Regional Turfgrass show filled 1,005 hotel rooms, down from 1,205 the year before.

Many events have been scrapped entirely as companies cut travel costs and look to dodge public outrage at perceived corporate excess. A poll by Meetings & Conventions magazine in February found that 21 percent of respondents had canceled events to avoid "public backlash."

Nationally, the lodging industry has been suffering since last fall, according to Rachel Roginsky of the Pinnacle Advisory Group.

Outside downtown Providence, the convention slowdown has eroded the so-called compression that pushed overflow guests to hotels such as the Radisson, by India Point Park, where the dusty tumult of Route 195 construction has been replaced by the economic typhoon.

Nearer to the convention center and Providence Place, hotels have offered deep discounts to fill beds. The average daily room rate in Providence fell 7.4 percent in the first two months of the year.

"It's all a rate game right now," Angelo De Peri, general manager of the Renaissance Providence, said. "You just need to figure out how to manage that."

They have also been tightening spending, asking bellhops to help in the kitchen, for example, and handymen to drive the hotel shuttle. "It's under a microscope, every nickel, dime and quarter you're spending," Tim Paulus, director of sales at the 292-room Providence Biltmore hotel, said.

WATCHING from the sidelines, investors who hoped to join the hotel-building spree have put off their projects after spending millions of dollars demolishing buildings and designing new ones.

Before the downturn, developers knocked down two structures to make room for an 11-story, 161-room Hotel Sierra on Fountain Street. Now, says investor Matthew T. Marcello, the project "is dead."

"Like all great plans, sometimes they fall apart," said Marcello, who estimates that investors have put in $3.5 million to buy land and prepare the site for construction. "Getting financing is a little tougher now. We're trying everything. We don't make money on bare land."

Across downtown, a proposed 154-room Residence Inn by the Garrahy Judicial Complex has also stalled, according to developer Aram G. Garabedian, the former president of the Cranston City Council. "It was looked upon as a very worthwhile project," he said. "The economics just about stop everything."

At the 110-room Hampton Inn, across from the shuttered Arcade, developer James J. Karam is gearing up for the grand opening Wednesday.

In the months ahead, Karam said, only an end to the downturn would fill the hotel's granite corridors and the former bank boardroom on the third floor, with its fireplace and antique wood-framed mirror.

"In the end, the economy has got to turn around," Karam said. "Hotels don't drive the economy, they ride it." Supply up, demand down

662 - Hotel rooms built in Providence since 2004

834 - Additional rooms proposed or under construction since 2004

3,444 - Decrease in number of rooms rented by conventioneers from July 2008 to February 2009 compared with same period a year earlier

bgedan@projo.com

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To see more of The Providence Journal or to subscribe to the newspaper, go to http://www.projo.com.

Copyright (c) 2009, The Providence Journal, R.I.

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