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Fresno, California's Hotel Boom Fuels Fear of Glut and Future Foreclosures

By Bethany Clough, The Fresno Bee, Calif.McClatchy-Tribune Regional News

Aug. 07, 2010--During the worst economic downturn in decades, hundreds of hotel rooms have been built in the Fresno area, spurring fears of a glut that could push hotels into bankruptcy.

Fueled by plans laid before the recession arrived, the number of area hotel rooms has jumped to 7,000 -- with about 1,200 rooms added in the last three years, according to the Fresno Convention & Visitors Bureau.

Many are going unused as families and businesses cut travel. Now hotels are cutting rates to try to fill empty beds, creating a dual challenge: tighter margins at a time when travelers already are spending less.

The recent bankruptcy filing of the three Piccadilly Inn hotels is one result of this double whammy, and some in the industry say they expect more financial pain.

"You're going to see a lot of these hotels going into foreclosure because they have a large mortgage payment," said Mark Soares, general manager of the Holiday Inn Express on Herndon Avenue near Highway 41.

On July 19, the Dallas-based companies that own three of the four Piccadilly Inn hotels -- Piccadilly Inn Airport, Piccadilly Inn Shaw and Piccadilly Inn Express -- filed for Chapter 11 bankruptcy protection. The hotels plan to remain open while they reorganize and deal with the $28 million in debt owed to Far East National Bank.

The Piccadilly hotels -- like others -- are dealing with a downturn in travel due to the recession. Conferences that once filled up local hotels each year are scaling back or switching to other cities for better deals.

The Piccadilly Inns might have been able to cope with the recession alone, said Amy Overton, general manager at Piccadilly Inn Airport and president of the Fresno Hotel/Motel Association. But new competition pushed them into bankruptcy, she said.

"No question about it," she said. "When brand new properties come into the marketplace they're certainly going to do whatever they can to go after their competitors' business. That, coupled with the economy greatly reducing the number of travelers coming into the market ... absolutely contributed to the Piccadilly's situation."

Occupancy rates averaged 50.2% for the first half of 2010 in Fresno and Clovis, according to Smith Travel Research, an Ohio-based research firm tracking hotel information. That's down from the mid-60s in previous years.

Some hotels have occupancy rates far lower -- in the 20s, said Steve Klein, general manager of the downtown Fresno Radisson and past association president.

To compete for the remaining customers, hotels are slashing prices.

The average daily rate for a hotel room in Fresno and Clovis for the first six months of 2010 was $71.85 -- a bargain not seen since 2006.

"Our average daily rates are going down from the previous couple of years, which in turn means your profitability is going down," Overton said.

Why so many?

The new hotels began popping up several years ago, before the recession.

Clovis was generally considered underserved, with just two hotels and one motel in 2005. That inspired the opening of five new hotels.

In Fresno, hotels did healthy business earlier this decade, with occupancy rates in the high 70% range, Overton said.

"Others look at that and they say, 'Oh, I want a piece of that,' " Overton said

When the economy boomed, hotels shared in the same evolution that retailers did. Big-name companies noticed that existing companies were making money here and began flocking to the area to get in on the action.

New hotel construction was also still on the upswing, rebounding nationwide after the Sept. 11 terror attacks when construction dried up as travel slowed, said Joe McInerney, president and CEO, of the Washington, D.C.-based American Hotel and Lodging Association.

And hotels have a several-year planning process that includes getting permission to use a national franchise nameplate, finding funding, going through the planning process and construction.

The industry didn't know the economy was going to turn south, and by the time it did, it was too late for many hotels to turn back, Overton said.

Now, many of those hotels are stuck with steep mortgage payments on multimillion-dollar loans on land and construction.

Pressure on sales

To compete, hotel sales professionals are stepping up their efforts.

"We uncover every stone we have," Overton said. "We go back to groups that have stayed here in the past."

Many hotels have rallied behind the Fresno Convention & Visitors Bureau, which markets the area outside of Fresno. Some are pushing the creation of a tourism business improvement district that could take over many of the bureau's duties.

If the district succeeds, hotels and motels would pay assessments to fund their own convention and tourism marketing.

The bureau has added new markets for its employees to target, including sports, corporations, education and international travel.

An employee was hired last year to market the area to leisure travelers, said acting CEO Layla Forstedt.

In Clovis, hotels are faring better because the city was so underserved in the past, said business development manager Shawn Miller.

Still, the hotels compete with ones nearby in Fresno. They have formed their own network with Miller's help to market themselves.

None of the Clovis hotels is large enough to serve groups looking for 150 to 200 rooms, so the hotels have joined forces to host groups.

That has brought in events and meetings that otherwise would have gone elsewhere, Miller said.

And although the proliferation of new hotels is a concern, at least one hotel official welcomes the competition, saying that free enterprise system will decide who succeeds.

"Sometimes the wrong time creates the right chances to succeed," said Jay Virk, spokesman for La Quinta near Shaw Avenue and Highway 99 in Fresno and the Fairfield Inn & Suites Marriott and Comfort Inn in Clovis. "I always take it as a challenge."

The reporter can be reached at bclough@fresnobee.com or (559) 441-6431.

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To see more of The Fresno Bee, or to subscribe to the newspaper, go to http://www.fresnobee.com

Copyright (c) 2010, The Fresno Bee, Calif.

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