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The Construction Sign Says "Opening This Fall" But Doesn't Say Which Fall;
Eleven of 14 Hotel Projects in Baltimore Stalled or Scrapped

The Baltimore SunMcClatchy-Tribune Regional News

August 24, 2010 --At the partially renovated Jefferson Building on Charles Street, construction workers haven't shown up in months.

On the corner of Water and Calvert streets, land was cleared a year ago to make way for a new building but remains a vacant lot.

Across Calvert Street, demolition began for another project but was abruptly halted.

Each of these properties was expected to be a flurry of activity this summer as developers raced to bring new hotels to the market. Instead, all three locations are dormant, and the opening dates have either been pushed back or put off indefinitely.

These are three of 14 hotel projects in and around downtown Baltimore that were supposed to be finished by now or substantially under construction, adding more than 1,000 rooms, creating hundreds of jobs and representing a private investment of more than $160 million in the city. Instead, only three of the 14 properties are on target to open this year, the largest of which has 62 rooms.

"We're dealing with a very dramatic market correction," said Kirby Fowler, president of the Downtown Partnership, a nonprofit that promotes downtown businesses. Before the recent recession, "everybody thought they could go into the hotel business. ... Now we're suffering from the abundance of all those projects."

The slowdown has affected hotel projects at all price ranges and types, from budget hotels to luxury projects, and from limited service to full service to extended stay. It also coincided with a dip in the city's hotel occupancy rate, from about 73 percent in 2007 to the low-60-percent range this year.

The most common reason for the building stagnation, which reflects a downturn in hotel construction nationwide, has been developers' inability to obtain financing. In some cases, builders say, cost overruns prevented projects from opening. And in at least one instance, the developers backed out after concluding there wasn't a market for the proposed hotel.

City planners and economic development specialists say the slowed pace is creating an urban landscape marked by dead zones of vacant lots and empty, older buildings in various states of renovation. One symbol of the market's uncertainty can be seen along East Redwood Street, on a sign outside the 130-room Hotel Indigo, which was to have opened by now.

"It says 'Opening this fall,' " said Rod Petrik, managing director of Stifel Nicolaus and an analyst of the hotel business. "But it doesn't say which fall."

Conditions were much different a year ago, when Baltimore was welcoming the $65 million, 202-room Hotel Monaco and marking the one-year anniversary of the August 2008 grand opening of the 757-room Baltimore Hilton Convention Center hotel.

At that time, city officials said those hotels would be part of a wave of new properties that would add 1,500 rooms by the end of 2010 and another 1,500 or so by 2013. But after a 70-room Holiday Inn Express opened at Gay Street and Fallsway at the end of 2009, many of the projects in the pipeline failed to open as scheduled.

One sign of the market's downshifting came this summer when two partially renovated properties -- the Keyser building on East Redwood Street and Jefferson building on North Charles Street -- were put up for foreclosure auctions and the developer of both filed for Chapter 11 bankruptcy protection to prevent the sales.

Now that development team, headed by businesswoman Annie Kim, is working to open the Redwood Street building within the next 180 days and explore its options for the Charles Street building.

Other indications of the slowdown appeared even sooner. In 2009, the developers of the partially completed 256-room Four Seasons Harbor East hotel disclosed that they were putting off the project's grand opening for at least a year and not moving ahead with construction of more than 20 levels of condominiums above the hotel until the residential real estate market became stronger.

The Four Seasons hotel is currently on target to open in late 2011 or early 2012, according to a spokesman for the project's developers.

Baltimore is not alone in the slowdown. A report in May by PricewaterhouseCoopers shows that the pace of hotel construction starts across the U.S. fell from 134,000 rooms in 2008 to 47,000 in 2009 and, through the first three months of this year, was on pace to fall to about 29,000 in 2010.

"This is not a Baltimore issue," said Tom Noonan, president and CEO of Visit Baltimore, the agency that promotes the city to tourists and conventioneers. "This is an every-city-in-America issue."

Baltimore's convention hotel, the Hilton, across from Orioles Park at Camden Yards, opened just as the recession was affecting travel, and the opening of such a large hotel might have had a chilling effect on pending projects.

"The question it raises is whether Baltimore City has been overbuilt with hotels, particularly following the opening of the Hilton," said Al Barry, head of A.B. Associates, a planning consultant who has worked on several recently opened downtown hotels.

At one point, hotels were seen as an alternative to projects that were even more difficult to finance, such as offices and housing, and that helped fuel downtown's redevelopment, Barry said.

But for projects nowadays, "the fundamentals have to be in place before any lending happens," he said. "It's very difficult to find lenders."

The delays haven't led to any convention-related cancellations. Noonan said meeting planners typically take into account which hotels are open, rather than what's projected, when choosing meeting sites.

At the same time, he said, additional hotels are good to have because they give meeting planners more choices. Noonan said he is counting on the opening of the Four Seasons hotel in particular because it will add more rooms at the upper end of the price spectrum.

Another factor contributing to the slowdown in hotel construction, observers say: Baltimore needs to fill more of the rooms it already has.

Downtown Baltimore has about 8,500 hotel rooms, Noonan said. He said he doesn't think many more hotels will get under way until three conditions are met -- the economy recovers, local hotel room rates rise, and occupancy rates inch back up above the 70 percent mark.

"You could ask anybody in the hotel industry if we need more hotels [right now], and the answer would be 'No,' " said M. Jay Brodie, president of the Baltimore Development Corp.

If there is any upside to the lack of hotel construction, owners say, it's less competition for the hotels that are open.

La Tran, a member of the family-owned Tran Group, which owns the recently opened 96-room Quality Inn and Suites on St. Paul Place, said business travel has been off but that he's doing well with leisure travelers coming to Baltimore for baseball games and weekend trips.

Tran's company, which has been able to finance its own projects, also is moving ahead with plans to open a 49-room hotel inside the old Hotel Junker on East Fayette Street by late August or early September.

"The way we see it," he said of other hotel setbacks, "it's an opportunity for us."

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Copyright (c) 2010, The Baltimore Sun

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