May 21--In the past three years, four Norfolk hotels stepped up with major renovations and placed million-dollar bets on the future of downtown. 

In the next couple of years, two new players will be in the game. A Courtyard by Marriott is under construction and the city is negotiating to bring an extended-stay hotel to Granby Street. 

Will that lineup make the table too crowded? Will there be enough demand to meet the supply? And could the timing be much worse, what with a feeble economy hanging around? 

Existing hotels are understandably concerned, newcomers predictably optimistic. 

The soft economy has depressed business travel and cut into the group business vital to the city's big convention hotels. And turnover at the Norfolk Convention and Visitors Bureau, which is responsible for bringing hotel guests into the city, hasn't helped. 

Already, one player has stumbled: The Radisson Hotel Norfolk filed for Chapter 11 bankruptcy in December and is struggling to reorganize its finances under the court's protection. 

"Either the market catches up or what happened to the Radisson is going to happen to the other independent hotels," said Harvey Moore, general manager of the Clarion Hotel James Madison. 

"There's not enough demand in the market to support two new hotels and I think everybody will suffer as a result," agreed Jonathan Rubin, co-owner of the Tazewell Hotel & Suites, a former Granby Street flophouse gutted and converted in a multi-million renovation into a 62-room boutique hotel. 

Annual occupancy rates in downtown Norfolk hotels have floated between 60 percent going to happen to the other independent hotels," said Harvey Moore, general manager of the Clarion Hotel James Madison. 

"There's not enough demand in the market to support two new hotels and I think everybody will suffer as a result," agreed Jonathan Rubin, co-owner of the Tazewell Hotel & Suites, a former Granby Street flophouse gutted and converted in a multi-million renovation into a 62-room boutique hotel. 

Annual occupancy rates in downtown Norfolk hotels have floated between 60 percent and 69 percent since 1995, but could fall below that this year, some hoteliers said. 

Smith Travel Research, the industry's chief statistical source, put citywide occupancy in the first quarter, traditionally the market's slowest period, at 54.6 percent. 

"Very few hotels can make money at those occupancy levels," said Steve Keup, general manager of the Norfolk Waterside Marriott Hotel. 

Both the Marriott and the Sheraton Norfolk Waterside Hotel are exceeding that average occupancy, which means the other three hotels -- the Radisson, Tazewell and James Madison -- are doing worse as a group, Keup said. 

Rubin said the Tazewell did much better than the average. The Radisson did worse, and Moore simply called the Clarion's first quarter "soft." 

An occupancy rate of at least 70 percent is what lenders and underwriters look for in financing hotels deals, said Bill Callnin, a consultant with Cayuga Hospitality Advisors in Virginia Beach. 

PricewaterhouseCoopers' Lodging Industry Group last year called the Norfolk-Virginia Beach market "fragile" because revenue growth per available room was falling below the national average, but growth in room supply was "nothing to worry about," said Cristina Ampil, a senior lodging analyst. 

"Fragile" is one above the lowest rating: markets in "decline" because supply growth was exceeding the national average while revenue lagged. 

Based on the latest data, which only counts rooms already added to the market, Ampil said Hampton Roads could still be described as fragile. 

But there are those, such as Anthony J. DiFilippo, the new leader of the convention bureau and chief salesman for the city's hotels, who argue that the market isn't half empty, but half full. DiFilippo would rather speak about creating demand than excess supply. 

"I'm bullish on Norfolk," said DiFilippo, who became president and chief executive of the agency in February. "There's a tremendous upside. We keep adding amenities like the Wisconsin. We're a viable location for tourists now as well as for conventions. I can see why a developer would see it as inviting." 

Just a 10-minute ferry ride across the Elizabeth River, Portsmouth has seen a dramatic increase in hotel rooms. The January opening of the Renaissance Portsmouth Hotel and Conference Center more than doubled the number of hotel rooms in the heart of downtown. 

And the old Governor Dinwiddie Hotel on High Street is undergoing a $3.5 million conversion to a Hawthorn Inn & Suites boutique hotel. 

But in Portsmouth, no one is voicing concerns about overbuilding. 

"We certainly can handle it, if you look at what we're doing now," said Keith Toler, director of the Portsmouth Convention & Visitors Bureau. 

Occupancy at the Renaissance and the Holiday Inn-Olde Towne Portsmouth on the waterfront have been strong this year, Toler said. He cited the city's lodging tax receipts, which have been growing at a double-digit pace all year, including a torrid 65 percent in April. 

The Renaissance has taken some transient business travelers away from the Holiday Inn, said Andrew Simasek, regional vice president of the hotel's management firm Newport Hospitality Group. 

"But we're hoping in the long run that the Renaissance will create more demand," Simasek said. "The reality is that hotels don't create demand. Demand is created by better meeting facilities, and that's what the Renaissance gave us." 

Cathy Grant, the Renaissance's director of sales and marketing, sees it much the same way. 

"I know we've taken some business from them, but we're also helping them, especially when we're sold out," said Grant. "We have so much convention space, but only so many rooms, so I need overflows. With the Holiday Inn and the Hawthorn, we could pull in some nice 400-500 person conventions." 

Some of Portsmouth's growth may be coming at Norfolk's expense. The Renaissance serves the same convention market targeted by the Marriott and the Sheraton. 

"People are looking for new destinations, something new and different," Toler said. "People have been to Norfolk before and they haven't been to Portsmouth." 

Group bookings in Norfolk are soft this year. 

"We're having an OK year so far," the Marriott's Keup said. "The first quarter was softer than expected. The group business is behind last year." 

Part of that is the soft economy, which has prompted business travelers to shorten their stays or book less-expensive lodging, Keup said. And groups often bring fewer people than they had anticipated when meetings were booked. 

"Leisure demand is holding up, summer travel should hold up," said Ampil of PricewaterhouseCoopers, which isn't projecting a travel turnaround until 2002. "Corporate transient really is the soft spot in hospitality right now." 

Last year's turmoil at the Norfolk Convention and Visitors Bureau contributed to the dip in group bookings this year. 

"The CVB was in purgatory for quite some time," Rubin said. 

Under the leadership of Marshall E. Murdaugh, the bureau became a private non-profit last year, funded by the city but answering to a private board of directors. The transition proved painful and the agency lost 11 of its 24 full-time employees. Murdaugh was asked to resign in October. 

After peaking at over 87,000 in 1998, the hotel bookings the bureau takes credit for fell to 73,000 last year, several thousand below its goal. This year's goal is 89,000. The agency's sales team has generated 23,000 bookings so far, and it only hired a new vice president of sales and marketing three weeks ago. 

"With Tony's leadership, I think we're poised to grow that business, to grow the pie for all of us," said Dan Marone, who started a week ago as general manager of the Radisson. "We'll catch up." 

The Radisson needs to catch up if its current owner is to survive. 

Patrick Investments Corp. bought the Clarion Hotel Norfolk in December 1997, invested $7.5 million in a renovation, more than it had planned, and reflagged it a Radisson. 

The costly remodeling undid the company because it couldn't generate enough business to cover its debts. Patrick Investments filed for bankruptcy protection in December after it failed to repay a $4.5 million loan to First Virginia Bank and its franchise fees to Radisson Hotels International. 

The Radisson lost $2 million last year and another $1 million in this year's first quarter, according to court documents. 

"Since the bankruptcy filing, we've done poorly," said Catherine Toomey, president of Patrick Investments. 

The Radisson's occupancy rates this year are actually falling behind last year's numbers. In April, occupancy was just 51.8 percent, compared to 67.4 percent last April, according to a First Virginia Bank bankruptcy court filing. 

"We've had hard times, but we're getting better," said Toomey, citing an occupancy rate of close to 60 percent in May, strong group bookings for the second half and a steady increase in transient rooms coming from the Radisson reservation network. 

But the troubled hotel will face fresh competition next year when the Courtyard by Marriott opens on City Hall Avenue. 

"I know the Courtyard will have an impact on our sales," Toomey said. "But I also believe the downtown Norfolk market is growing and needs to continue to grow." 

LTD Management Co., which is building the $10 million Courtyard, has no worries about adding 150 rooms to the downtown Norfolk market. 

"This is going to do well," said Kimberly Schlick, director of sales and marketing for the Chesapeake-based hotel owner and developer. "It really just complements the full-service hotels. In downtown there really isn't a presence of a moderate-price, select-service hotel with a brand name recognized by business travelers." 

No one said the Courtyard won't do well, but its opening next May could take business away from everyone. 

"If any hotelier in town told you he can't wait for more room supply, he's lying," said the Marriott's Keup. "Sure occupancies are going to drop, no doubt about it. It will take some of our corporate transient business, but, are we deathly afraid? No." 

Keup is less concerned about the proposed extended-stay hotel on Granby Street. 

The city is negotiating with Thompson Hospitality LLC of Chapel Hill, N.C., to bring a top-tier, all-suites hotel to a parking lot at the corner of Granby Street and City Hall Avenue. 

City officials say the hotel will fill an empty niche in the city, serving consultants, business people and others in town for longer stays than just a few days. The developer plans a 100-plus-room hotel and is confident the market is there to fill it. 

"They're a bona fide developer," DiFilippo said. "They've done their homework, looked at the numbers and feel there's the same opportunity we see." 

Others are less optimistic. 

"If you have a really significant increase in supply, but you don't have a dependable source of increased demand, everybody gets diluted and there's a shake out -- a la the Radisson," said the consultant Callnin. "The new Courtyard's not going to help anybody and, if that all-suites comes, it's going to get worse." 

Many hoteliers agree. 

"These two projects are not going to drive new business, just dilute existing business," said Jeff Roike, the Sheraton's general manager. 

Said D.R. "Tuffy" Butler, president of the Norfolk Hotel-Motel Association: "To add to the room count now could push some of the weaker properties over the brink." 

The Tazewell will be competing head-on with both new hotels. It expects to open 12 more suites across Tazewell Street from the hotel in the building above Jack Quinn's Pub. 

The new owners of the James Madison Clarion pumped $5.5 million into buying and renovating the turn-of-the-century hotel. Moore, the Clarion's manager, said Dow Hotel Co. of Seattle bought the hotel in 1998 when the market was expanding. 

"We thought it would continue, but it has not," said Moore, who's also managing partner for the hotel ownership group. 

One advantage to the two new hotels could be that they will help the city draw larger conventions, Roike said. 

But most groups that can fit into the Waterside Convention Center can be accommodated by the existing hotel base, said Ken Hawkins, the Sheraton's director of sales and marketing. 

Hawkins believes the city needs to attract more businesses downtown, expand the convention space and bring better and less-expensive airline service from the Northeast. 

"Those are the three keys that would help fill all the hotel rooms that are going to be built," he said. 

DiFilippo believes the new rooms can be filled regardless. 

"If you look back 10 years ago when the Marriott was built, was there a market for it then? No. It had to be created," he said. "If we keep adding amenities we're going to keep growing. One of our main advantages is the diversity of amenities we have." 

The No. 1 challenge facing convention and visitors bureaus nationwide is that their markets have become homogeneous, DiFilippo said. 

"Everybody has a Starbucks," he said. "Who has a Wisconsin and a Nauticus? Who has an active, attractive riverfront?" 

Next year, Norfolk will host the Society of Government Meeting Planners' annual meeting. It's the first time the meeting isn't being held in a first-tier city. About 1,000 government meeting planners will attend. 

"Not only will that meeting have a great economic impact, but if each one subsequently brings a meeting, it will have a terrific impact," DiFilippo said. 

Marone voiced confidence in DiFilippo. 

"Norfolk is a municipality on the move," he said. "It's up to the professionals in the industry to bring in the business. We have to make it happen. You can't throw up your hands." 

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(c) 2001, The Virginian-Pilot, Norfolk, Va. Distributed by Knight Ridder/Tribune Business News. MAR,