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Can Allentown, Pennsylvania's $234 million Hockey Arena Complex Fill Three Hotels?

 Lone Downtown Hotel Currently Posting a $2 million Loss and Occupancy Rate of Only 35%

By Matt Assad, The Morning Call (Allentown, Pa.)McClatchy-Tribune Regional News

Sept. 09, 2012--Since two Maryland investors bought the Holiday Inn Center City Allentown in 2007, the downtown's only nightly hotel has lost more than $2 million and posted an occupancy rate of just 35 percent.

So it's with great anticipation that Vinay Barthwal and Ramesh Majethia look forward to a downtown rejuvenated by Allentown's $234 million hockey arena complex. But along with the 8,500-seat arena come two more major hotel projects.

That raises the question of whether a downtown that currently isn't supporting one hotel will in just a few years be able to support three.

"We are hoping this will blossom into something that will help us recoup our losses," said Barthwal, a hotel investor from Gaithersburg. "An arena hotel seems to make sense, but a third hotel, I don't know. We're hardly making it as it is."

The hockey and office building complex at Seventh and Hamilton streets is scheduled to host the Philadelphia Flyers' minor league affiliate Phantoms in 2014, and part of the nearly quarter-billion-dollar project calls for a 180-room, seven-story hotel attached to the arena along Seventh Street.

Beyond that, investor Albert Abdouche now says he plans to use the massive arena zone tax incentives to reopen the 148-room former Americus Center hotel at Sixth and Hamilton streets. The simple math would suggest that the arena development has a lot of work ahead if it's going to fill all those rooms.

Even with its downtown monopoly, the Holiday Inn fills roughly 78 of its 224 rooms per night. That abysmal occupancy rate has assured its investors a loss in each of the past five years.

Industry standards suggest it takes a 60 percent occupancy rate for a hotel to begin making money. Adding the arena hotel and Americus to the downtown market would boost the number of rooms downtown to 552.

That means that for profitability to be assumed, the three hotels would have to fill more than 330 rooms per night. Further, projections included in the city's bond offering later this month forecast yet another hotel by 2020.

Even if the arena is a smashing success, can it quadruple the number of nightly room rentals in downtown Allentown? Even the most seasoned hotel market evaluators aren't sure about the answer to that.

Few people know Allentown's downtown hotel market better than Peter Tyson, a vice president with PKF Consulting, an Atlanta-based company that specializes in analyzing the hospitality and tourism industry.

When Allentown investors considered building a hotel in the early 1980s, his study determined that the presence of companies likes Hess's, Mack Trucks and PPL warranted the building of what was then the 224-room Hilton Hotel, now known as the Holiday Inn.

And when city planners began considering the arena project for the downtown, Tyson's analysis concluded that an arena hotel was warranted -- sort of.

"We thought a hotel of 180 rooms, built in conjunction with the arena, made sense," said Tyson, a vice president in PKF's Philadelphia office. "But we're realists. It probably will come at the expense of the Holiday Inn."

And if 148 rooms are added at the Americus?

"That wasn't part of the analysis," Tyson said. "Would that be too many rooms for the market? I don't have that answer, but it certainly raises a valid question -- one worthy of great study."

Abdouche and Holiday Inn general manager J.R. LeBron say the answer is painfully simple.

"We don't need the arena hotel," Abdouche said. "We have two beautiful hotel buildings downtown already. Help us make these elegant hotels that the city is proud of. Why build another one?"

But Barthwal admits that's not a realistic view. Later this month the city will sell $234 million in bonds that will include tens of millions of dollars of borrowing to begin building the arena hotel. The arena hotel is coming whether they are ready to compete with it or not, Barthwal admits.

The potential increase of downtown room isn't the only math going against Allentown hotel owners. Since 2005, the number of hotel rooms in the Lehigh Valley has increased from 4,393 to 5,749 -- a 31 percent increase. And with it, Valleywide occupancy rates plunged from 66 percent to 58 percent.

Many of those new rooms were built along Route 22, enabling people to avoid coming into the downtown for lodging, said Michael Stershic, president of Discover Lehigh Valley, the Valley's primary promoter of tourism.

Stershic said the idea of the arena district's quadrupling the number of rented rooms downtown may seem like a daunting task, but not an impossible one. The answer to whether all those rooms are needed lies not only in the arena, but the development around it, he said.

City Center Investment Corp. is proposing three office buildings that are to be occupied by as many as 2,000 new employees for companies such as Lehigh Valley Health Network and Lehigh Gas and a collection of law, accounting and other business firms.

"The mixture of those firms will be a huge part of the equation," Stershic said. "Those tenants will drive visitors into the hotels more than hockey. Corporate meetings and corporate travel can fill a lot of rooms."

The other factor is the conventions the arena can attract. For example, more than 100,000 Jehovah's Witnesses have visited Reading's downtown since June to attend six weekend conventions at the 7,100-seat Sovereign Center. During those weekends, hotels throughout Berks County were near capacity.

Though hockey is likely to play little role beyond lodging for the away team, Stershic said concerts, corporate meetings and expos will help.

Sara Hailstone, Allentown director of community and economic development, said the more rooms the downtown has, the more in demand the city will become.

"Allentown has been passed over by a lot of trade shows and conventions because there isn't enough hotel rooms within walking distance," Hailstone said. "We look at this as an opportunity to start attracting those conventions. Additional rooms is a benefit, not a problem."

Jim Harbaugh, City Center chief operating officer, agreed, stressing that full-service hotels are key to attracting new businesses into the city.

"Our tenants are telling us it's a big part of their decision," Harbaugh said. "If you look at what we think will be going on here in a few years, the demand for hotel rooms will far exceed what's happening now."

But business leaders say change can only come after downtown Allentown's reputation changes from a place known for crime and three decades of decay to a place where people actually want to be.

That is the uphill battle Barthwal and Majethia say they have been fighting. Yes, they've lost money every year since buying the Holiday Inn, but they say it's not been for a lack of trying.

They've pumped $3 million into creating one of the city's nicest hotels, renovating every room, the hallways, the lobby and the elevators. And they added the Made in Brazil restaurant to go along with its room-service kitchen.

The problem, Barthwal and Majethia say, is people simply do not want to be in downtown Allentown. For that reason, the hotel owners are willing to accept the changes the arena will bring, even if one of them brings an end to their monopoly.

"This will change the downtown," Barthwal said. "From where we are, that can only be good."

matthew.assad@mcall.com

610-820-6691

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(c)2012 The Morning Call (Allentown, Pa.)

Visit The Morning Call (Allentown, Pa.) at www.mcall.com

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