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Williamsburg, Virginia Hotels Face Grim Future with Estimates
that 25 to 30 of the 76 Area Hotels are Behind on Mortgage
Payments With Another 22 Listed as Closed

By Steve Vaughan, The Virginia Gazette, WilliamsburgMcClatchy-Tribune Regional News

Nov. 14, 2011--I told you I was sick. -- Old joke.

Years of complaints about hotel occupancy are reaching an ominious crescendo.

* Early last month two city motels were sold at auction, one bought by the city itself. * The Crowne Plaza Fort Magruder was sold to a Florida outfit for $3.5 million, only one-third of its assessed value. * The Lexington George Washington went into receivership and was closed. * Other motel properties, like the Princess Anne on Richmond Road, sit vacant. * More motels are quietly up for sale, without much prospect.

Sources close to the hotel industry say that 25 to 30 hotels in greater Williamsburg are behind on their mortgage payments. That's a big chunk of 76 hotels in the market.

Another 22 are listed by Smith Travel Research as closed.

City Councilman Doug Pons, a hotelier himself, said what he's hearing from the industry isn't good.

"I can't speak to the intimate details of anybody's business but mine, but what I'm hearing anecdotally is that we have facilities ranging from drive-up motels to conference centers that are in dire straits," he said.

Commercial real estate pro Chris Henderson predicted six months ago that hotels would start falling victim to the recession. He thinks this is the tip of the iceberg.

"There are another half dozen hotels on foreclosure watch right now, and I wouldn't be surprised to see another 20 foreclosures in the next year," he said.

Word around town is that Kingsmill Marriott and the Courtyard Marriott may both be close to foreclosure.

Hotel-Motel Association president Bill Scruggs was just named to co-chair a task force on the hotel industry that was formed by the Greater Williamsburg Chamber & Tourism Alliance.

"I don't think we're at a tipping point yet," he said. "Yes, the lodging industry in our destination is faced with very serious challenges, but the good news is many in the community are becoming more acutely aware of these issues, and a willingness to be involved. The Alliance lodging committee is a good example of local business leadership seeking to identify the problems and facilitate resources to resolve them."

Scruggs said the committee will find out what the problems are to determine if there is anything anyone can do about them and report back to the Alliance.

The very committee speaks to a growing concern about the industry by the business community.

Relations between the Alliance and the Hotel Association have been strained over the years, leading more than a score of hotels to withdraw from membership in the Alliance membership two years ago.

Scruggs said the problem was low occupancy and perhaps "a bit of oversupply." He added that the problem isn't just with older hotels.

"Some of those newer hotels were built and purchased when we were doing well and the owners paid a premium price for them," he said.

"If you're in the hotel business, you have to reinvest in your property about every seven years. You buy new beds, you fix wear and tear," he said. "If even our new hotels can't get the capital they need to do that, then that is a tipping point that leads into a downward spiral."

Henderson agreed. "People want the best of everything and they want it at a discount," he said. "Some of those who bought in the peak years, once they discount their rooms, can't pay their debt service."

Henderson said the only hope is a boost in demand. "The supply in the market is what it is. We've got to find a way to boost demand, whether it's a new attraction or better promotion of old attractions."

Since the hotel industry is a large source of tax revenue for local governments in the Historic Triangle, their pain could soon be everyone else's pain.

Henderson said that if he were in the hotel industry and had a real estate assessment that didn't match the income method of determining value, he'd certainly be appealing it to gain a reduction.

Reduced assessments on hotels, resulting in lower property taxes, could put pressure on local governments to raise real estate tax rates or cut services.


(c)2011 The Virginia Gazette (Williamsburg, Va.)

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