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News for the Hospitality Executive

The Albany, New York Region Riding the
 Upside of a Hotel Building Cycle
By Kevin Harlin, Times Union, Albany, N.Y.
Knight Ridder/Tribune Business News

Oct. 17, 2005 - When the Hampton Inn & Suites quietly lighted up its giant sign and opened its doors on Albany's Chapel Street on a Friday night this month, the new hotel was not yet in the chain's reservation system.

Without the fanfare, or help from that reservation system, it still managed to sell about a dozen of its 165 rooms that first night, Oct. 7.

There's a pent-up demand for rooms downtown, said I. David Swawite, president of Omni Development Co., which had been planning and seeking financing for the hotel project since 1999.

But Omni Development and the Hampton Inn aren't the only ones banking that people are shopping for places to lay their heads in this market.

The Capital Region is riding the upside of a hotel building cycle. Throughout the region, hoteliers have brought hundreds of new hotel rooms onto the market in the past few years. And hundreds more are in various stages of planning or development.

Hotels are a cyclical business; there will be a downturn.

But hotel analysts and builders say they are capitalizing on a healthy economy and a returning demand for rooms from both business and leisure travelers. A full cycle can take 10 or more years. And this cycle, they say, is still young.

"You've got some building, but it's not like the craze that went on earlier," said Gordon Lattey, a lodging analyst and consultant, referring to a building spurt in the late 1980s.

Builders, flush with land, and lenders, flush with cash, were quick to sign off on hotel projects 20 years ago, he said.

But by the early 1990s, several hotels in the region were operating under bankruptcy protection, or were changing hands quickly as different owners tried to make the numbers work.

Lodging Econometrics, a Portsmith, N.H.-based industry consulting firm, said the hotel-building bottomed out nationwide in 2003. But new rooms are going up again at a healthy clip.

And in the Capital Region, they're growing faster.

In 2003, the Capital Region saw just a 0.1 percent increase in rooms, compared with 1.7 percent growth across the country. But a slew of new rooms opened locally in 2004.

Lodging Econometrics said it expects a 5.6 percent room growth rate this year, versus 1.6 percent nationwide. And while the projects in the pipeline slated to open next year dip slightly, the company sees another rise -- 6.7 percent -- for the Capital Region in 2007.

"The pipeline has been growing modestly. It hasn't been going gangbusters," said Pat Ford, president of Lodging Econometrics.

He said he can't predict what the economy will do, but there's no sign that the hotel industry is overbuilding this time around. "It's synchronized with a recovering economy," he said.

Smith Travel Research, an industry tracking firm in Henderson, Tenn., also sees hotel-room growth, though it projects a more muted 0.5 percent room increase in 2005 nationwide.

But one problem inherent in the hotel market is the lag time between when travelers increase their demand and builders can increase the supply.

Ford said it takes on average two years between when a project is publicly announced and when the rooms open to guests.

And sometimes it's much longer than that. Swawite's Omni Development first announced its Hampton Inn plans in 1999, though construction didn't begin in earnest until last year.

The lenders have not always been hospitable to hospitality projects.

Swawite -- whose company built Albany's last major downtown hotel, the Crowne Plaza -- said mortgage guarantees for his Hampton Inn fell through after the terrorist attacks of Sept. 11, 2001.

A decade earlier, hoteliers said the first Persian Gulf war capped demand -- and their building ambitions.

Gary Smith, a hotel consultant and former general manager of The Desmond Hotel and Conference Center in Colonie, has also been trying for years to secure the financing necessary for his proposed boutique hotel on State Street.

But the climate has changed over the past year.

Smith said he expects to announce progress on his boutique hotel this month.

And Michael Hoffman -- whose Turf hotels company is building a Homewood Suites by Hilton hotel on Wolf Road in Colonie -- said lenders are interested in hotels again. But they're reading market occupancy reports and feasibility surveys closely first.

Swawite said the lenders for his Hampton Inn project, Buffalo-based M&T Bank, got a first-hand taste of the market for rooms in Albany. "When the fellows from Buffalo came in, they couldn't get a room here, so they knew there was a need," Swawite said.

The availability of financing creates a danger of overbuilding again.

"The hotel industry has been very good at being its own worst enemy," said Jan Freitag, vice president with Smith Travel Research. "What normally happens is that the numbers go up, people get excited and build a lot, and then the numbers go back down."

And rooms go empty. Or older hotels close.

But hotel builders and operators have one advantage in this current building cycle: reams of data.

Firms such as Lodging Econometrics and Smith Travel collect and disseminate information about how many rooms are filled each night, what is being charged in various markets, and what is being built.

Because of that, "it's going to be much more difficult to get into an oversupply situation today than it was 20 years ago," said John Corgel, a professor at the Cornell University School of Hotel Administration.

He said many of the rooms Lodging Econometrics projects will become available in the Capital Region market in 2007 or 2008 may not get built, as demands and guests' preferences constantly shift.

And whatever ultimately does get built could look different from what's out there today.

Over the past few years, most of the hotels that have opened have been limited-service, no-frills names such as Hampton Inn or Holiday Inn Express.

"It seems like lenders wouldn't look at a full-service hotel for years," said Smith, the former Desmond official.

But that's changing, hoteliers said.

Omni Development's Hampton Inn, which officials formally opened on Tuesday with tours and a ribbon-cutting ceremony, is still technically a limited-service hotel. But it will have two full-service restaurants -- Yono's and dp: An American Brasserie.

Those restaurants will supply room service to guests.

And theme park operator Six Flags Inc. has upped the ante in the market by building a hotel with attached indoor water park across Route 9 from its Great Escape & Splashwater Kingdom in Queensbury. The new indoor water park is slated to open this winter.

Holiday Inn is considering the water park notion as well, revamping its Holidome format to include a slew of water rides. Several new hotels are expected to be built in that format elsewhere in the country, and eventually the chain expects some of those features to make their way into hotels in this area.

Or not.

Eventually, demand will dry up again. Few new projects will be proposed, and some of those in the pipeline will quietly be spiked.

"Very, very few have the guts and the money to be countercyclical, to build on a downturn, and to be the first out of the gate on an upturn," said Smith Travel's Freitag.


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