July 10, 2010 --The hotel arms race has begun.

By the time the Super Bowl arrives in 2012 and the Indiana Convention Center doubles in size, existing Downtown hotels will have spent more than $70 million on improvements in a four-year buildup aimed at countering rising competition.

The new round of spending comes as the hotels prepare to compete with the 1,005-room JW Marriott, which will open early next year amid what is already a challenging time for the industry.

While Indianapolis is making a $275 million investment in its convention facilities and has successfully lured special events as large as the 2010 NCAA basketball Final Four and the Super Bowl, the limping economy has crimped demand for hotel rooms.

Room demand from 2007 to 2009 slipped 6 percent for hotels citywide and almost 7 percent for those serving Downtown, according to Smith Travel Research.

There are signs of a recovery this year, but some hotel managers wonder whether it will be enough to absorb the 1,626 new rooms that are flooding the market as part of the $450 million Marriott Place project (the JW Marriott plus a Courtyard Marriott, a Fairfield Inn & Suites and a SpringHill Suites).

The complex of four hotels, including the JW Marriott, will bring a 31 percent jump in hotel rooms Downtown.

That's enough to give hotel operators pause, even as they consider the benefits of a coming Super Bowl and more trade show business.

"It's good to have friends in our neighborhood, but I don't know if I want 1,600 of them," said Ben Joos, general manager of the 360-room Embassy Suites Downtown. "Obviously with that many rooms entering the market, we need to be competitive, make sure we're offering a product to our customer."

The Embassy Suites has several projects in the works to improve its appeal, including faster elevators. Other hotels serving the convention center are doing even bigger things to boost their appeal.

The Westin, at 573 rooms the second-largest hotel in the city, plans a $1.3 million renovation of its lobby prior to the Super Bowl. It remodeled its health club and Shula's Steak House last year for $1 million.

The fourth-largest hotel, the Hyatt Regency, will begin a $1 million project later this year to renovate a ballroom and add a club lounge.

And the fifth-largest, the Omni Severin, will embark on a room renovation costing several million dollars.

Many of the numerous smaller hotels serving Downtown are spiffing up, as well.

The 92-room Homewood Suites by Hilton recently spent $20,000 building a new breakfast area and plans to add flat-screen TVs in rooms at a cost of $50,000 to $100,000.

Jeff Good, who owns the Downtown Homewood Suites and two others in the area, said he's worried about JW Marriott's impact on smaller hotels.

"It's flooding the market with a lot of rooms," he said, putting pressure on the Indianapolis Convention and Visitors Association to generate more trade shows and corporate meetings to fill the soon-to-be-expanded convention center and the newly opened hotels.

Don Welsh, chief executive of the ICVA, said Indianapolis is poised to book more and larger trade shows.

With all that extra exhibit space and hotel capacity, the city in the next several years hopes to double the number of large conventions it hosts, from about 34 a year to 70, Welsh said.

That would increase convention-related hotel room bookings from 525,000 a year to around 850,000, supplying needed new business for the city's hotels, he said.

That could be a challenge, given the current economic slump. But with the JW Marriott and expanded convention center, Indianapolis moves up from 32nd to 16th among U.S. cities ranked by meeting space and hotel room capacities -- giving it the facilities to host larger gatherings.

To broaden its marketing reach, the ICVA has increased its sales team from 12 people in 2008 to 17. It's also spending $1.5 million this summer in marketing campaigns to generate tourism, compared with about $450,000 in past years.

Welsh said the ICVA has tracked more than $70 million in capital improvements by Downtown hotels since the start of 2008. That tab could top $100 million by the time the Super Bowl arrives in February 2012, he said.

Some of the largest hotel projects came in 2008. They include renovations of $10 million by the Marriott Downtown, $6.5 million by the Westin and $4.7 million by the Hilton Indianapolis.

The Super Bowl won't be a pricing bonanza for hotels because most hotel rooms Downtown are already presold at agreed-upon rates to the National Football League for use during Super Bowl week. To get the game in Indianapolis, local organizers had to agree to contract up to 95 percent of their hotel rooms, or about 17,000.

The rooms also were committed at a set price, so hotels can't raise their rates like they do during the Indianapolis 500 and other big events.

Hotel operators see the Super Bowl as a way to showcase the city, said Jesse Ghumm, general manager of the Hampton Inn Downtown.

"It's great for the city," he said. "Can you imagine anybody saying Indy can't run a convention after they run a Super Bowl?" For that reason, Ghumm said, he's willing to commit his hotel rooms to the Super Bowl at noninflated rates.

"A hotel like mine, for me this benefits the future, not the Super Bowl itself. I will just have to ride this one through."

Good said he's satisfied with the room rate his Homewood Suites will be able to charge during the Super Bowl. "I would say they were normally in line with special events (pricing). It's nothing outrageous."

Hotel operators in Super Bowl host cities would be smart to spend money on capital projects, given the good publicity it generates for the host city, said Kim Cole, spokeswoman for the Four Seasons Resort in Scottsdale, Ariz. The Phoenix area hosted the Super Bowl in 2008.

Cole said the 210-room Four Seasons Resort sped up a resortwide renovation in 2008 in order to finish it "literally a week before the Super Bowl."

"I think if you have something that's already in the works or something that you're thinking of doing, perhaps it's an impetus to take those extra steps," Cole said. "I mean, why not if you have such a great national spotlight on you and your destination?"

One reason Downtown hotels may be willing to spend money is that this year has seen a rebound in their business.

While hotel room demand dropped from 2007 to last year, so far this year, demand is up 11 percent compared with a year ago for the 50 hotels that serve Downtown, according to Smith Travel Research.

Surprisingly, room bookings for the first five months this year are on pace with 2007, the last economically healthy year before the recession hit.

"That's a good showing," said Jan Freitag, vice president for Smith Travel Research. "There are a lot of markets that wish they were able to perform as well as '07."

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