Aug. 4, 2009--The ribbon cutting at the BWI Aloft Hotel last week marked the opening of a new hotel, but the gala event also could have served as a wake for the county's seven-year-long hotel building boom.

With dozens of hotels now dotting the landscape surrounding BWI Thurgood Marshall Airport, Aloft is likely to be the last new hotel opening for the foreseeable future.

"We've built probably a few too many too fast," said Lou Zagarino, immediate past chairman of the BWI Business Partnership and a longtime observer of the local hospitality economy. "Demand ... is soft compared to the amount of supply that we have."

As the recession has curtailed business and recreational travel, occupancy in county hotels has fallen. In June, the countywide occupancy rate was 64.5, down from 66.5 a year ago and 70 percent in June 2007, according to Smith Travel Research.

Of the 18 hotels that opened in the county since 2002, 12 are near BWI or Arundel Mills in Hanover. Four were in the Annapolis area.

While 10 more are either in the county permitting process or proposed on paper, none are within sight of starting construction, according to the Anne Arundel County Economic Development Corp.

"Not too much will happen for a couple of years," Zagarino said. "The industry will take a step back and take a look at where we stand."

Signs of the slowdown can be seen across the county -- Crosswinds, the $437 million, five-hotel resort proposed in Linthicum by developer Heffner and Weber, is on hold.

County Executive John R. Leopold has rejected the development management company's request for $62.8 million in tax-increment financing and special tax bonds. The project was central to the executive's concept of creating an Aerotropolis, where people would work, live and shop around the airport.

"In these challenging times, with the sluggish economy, the administration feels that it is not cost beneficial to taxpayers at this time to move forward," Leopold said. "I am still intrigued by the concept of Aerotropolis and I believe it has merit."

A hotel planned as part of the Annapolis Towne Centre also has been shelved.

As occupancy has fallen, so have profits. Revenue is down 6 percent and hotels have cut rates to stay competitive, said Connie Del Signore, president and CEO of the Annapolis and Anne Arundel County Conference and Visitors Bureau.

The average daily rate in June was $102, when last year it was $115, according to Smith Travel Research.

"We're selling the same amount of rooms (as last year), but everyone is getting 10 to 12 percent less dollars for every room we're selling," said Zagarino, who sold his property in Linthicum in 2007. "Unfortunately, that's where the profit is."

Del Signore said a pause in new construction might be a good thing for existing hotels.

"At this point, we're giving an opportunity for our demand to match our supply," she said.

Although hotels are making less money, the long-term impact of the boom can still be felt at the tax-collection office.

Hotel tax revenue for the county has increased by about $1 million each year since the hotel boom began. In 2003, when there were 7,500 hotel rooms in the county, hotel taxes pulled in $10 million. In 2008, when the number of rooms was close to 11,000, the taxes pulled in $15 million.

Those figures don't include Annapolis, which has brought in about $2 million in taxes for the city over the past few years.

Del Signore said BWI and Annapolis are different markets which have different customers.

"(BWI) relies on the headquartered corporations that are out there, defense contractors, BWI Airport," she said. "They're absorbing a lot of new inventory where Annapolis is absorbing a small amount of inventory."

All that money has made the hotel tax a political football. Over county objections, state lawmakers passed legislation this year guaranteeing the bureau 7 percent of all hotel tax receipts to fund tourism efforts.

That will cap at 17 percent in 2013, giving the bureau nearly $2 million more than it currently receives.

Leopold, meanwhile, has proposed a bill that would allow the county to withhold $1 million a year from it unless the bureau files detailed records on executive compensation.

Aloft at BWI

Aloft has set modest goals for its first year, projecting a 60 percent occupancy as it carves a niche as a specialty hotel.

"We target people who want to move away from the traditional cookie-cutter hotels," said Abena Bondah, director of sales and marketing at the hotel.

The hotel, which employs 35 people, is a boutique hotel that features a contemporary-looking lobby with pool tables, art from local artists, a lounge area and a bar where guests can DJ using their own iPods. Rooms maintain the modern feel with vibrant colors and a plug-and-play center that can run iPods, laptops, DVD players and video game systems through the TV system.

Another Aloft hotel, part of the Starwood Hotels group, opened this year in a joint property in Hanover with the Element Hotel, Starwood's extended stay hotel.

Bondah said the hotel is having trouble getting some businesses on board as companies are downsizing.

"There's already too many hotels in their portfolio," she said. "I think the market is a little too saturated."

Developers of the BWI Aloft, The Buccini/Pollin Group of Washington, D.C., will have six hotels in the BWI area when Aloft opens this week. Earlier this year, it opened the Hilton Garden Inn/Homewood Suites joint property at Arundel Mills.

Looking ahead

Joseph Bojanowski, executive vice president of PMHS, Buccini/Pollin's management company, said that despite the recession, the BWI area is still an attractive place to open a hotel.

"Arundel Mills and BWI are doing very well this year compared to virtually every other market in the country," he said. "The diversity of businesses that Anne Arundel County has been able to attract, specifically to this BWI business development area ... the profile of that customer base is very strong."

Dave Pollin, president of Buccini/Pollin, said the hotel was planned before the recession started, not that it would have mattered. The company acquired the land it sits on in 2003 and owns a Hilton on the property.

"We're long-term owners and operators, so we look at these things on a 20-year horizon," he said.

From brainstorming to finishing the hotel takes about five years usually, Pollin said. It can take 18 months to two years just to get on site from going through the permit process. His company spent $3 million on permits and fees for the BWI Aloft.

It's not surprising to his colleague, Bojanowski, that other developers don't seem to be moving fast on proposed hotels. In the past, the permit process moved slower than getting financing in place, since permitting involves going over and tweaking development plans with several county organizations and effected state organizations. The opposite is true in this economy.

"Ideally, you'd want your product to the market on the front end of the upturn," he said. "If financing was available, more people would be doing their projects."

The good news for those hotels already open is that Baltimore is an attractive place for meetings and conventions, according to Daraius Irani, a Towson University economics professor. BWI, tech businesses and government contractors scattered throughout the county makes it an attractive place. He also said he sees Baltimore as an attractive destination for government travel.

"Government travel planners are basically crossing off any tourism destinations because they don't want to be frivolous with taxpayer's money," he said. "Baltimore is a great place to have a meeting because it's not considered a touristy place although there are tourist destinations."

With Base Realignment and Closure bringing thousands of jobs and dozens of new employers to Fort George G. Meade, the hotels around BWI may just have to wait for business to pick back up. Zagarino said the area should be in great shape when that happens.

"The good news is that eventually all of this product will get absorbed and different price points and styles of hotels will also create different types of demand," he said.

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