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Making room, but not nearly enough

With a bigger Convention Center, officials saw a need for 2,500 more hotel rooms - a tall order in a crisis.

The Hotel Palomar at 17th and Sansom, is set to open this year, as is Le Meridien. They, along with the Sheraton that opened in December, add 525 rooms to Center City.
The Hotel Palomar at 17th and Sansom, is set to open this year, as is Le Meridien. They, along with the Sheraton that opened in December, add 525 rooms to Center City.Read moreELIZABETH ROBERTSON / Staff Photographer

Philadelphia convention officials, hoteliers, and hospitality experts have touted a need for up to 2,500 new hotel rooms to support the newly expanded Convention Center for its spring 2011 rollout.

There's one big problem: The city will be nearly 2,000 rooms short of the goal.

The credit crisis has stalled development of several hotels proposed for Center City, forcing existing hotels to shoulder the load of housing additional conventioneers.

Peter Tyson, vice president of PKF Consulting, which tracks the region's hospitality industry, said obtaining financing to build hotels "probably will not ease until 2010."

Factor in an additional 18 to 24 months to build a hotel, and 2012 could be the earliest that new hotels will start sprouting here - at least a year after the $700 million newly expanded Convention Center opens.

Currently, there is no shortage of room, because of the economic downturn.

Only two Center City hotels are scheduled to open this year: the 202-room Le Meridien in the old YMCA building at 1421 Arch St.; and the 231-room Hotel Palomar under the Kimpton brand at 117 S. 17th St. at Sansom.

Combined with the 92-room Sheraton Four Points Hotel that opened at 1201 Race St. in December, the three hotels will add 525 rooms by the end of this year - far short of the 2,500 that the city was banking on to support the bigger Convention Center.

Convention and group business make up 40 percent of market demand for hotel rooms in the city.

Realizing no more new rooms will be ready, convention officials are marketing the expected inventory - about 11,000 Center City rooms - to planners who tend to book conventions five or more years in advance.

"We don't sugarcoat it," Jack Ferguson, executive vice president of the Philadelphia Convention and Visitors Bureau, which is in charge of booking conventions for the expanded center, said last week. "We tell them what is proposed to be developed, and that we will have inventory in existing hotels."

Ferguson said the plan was to increase room blocks in existing hotels until the new hotels were built.

"If planners come in now and need rooms, we reach out to existing hoteliers," he said. "As a new hotel comes online, we will adjust."

Last summer, at least five other hotel projects were on the drawing boards that might have supplied up to 2,500 rooms by 2013.

They included a 265-room W Hotel at 12th and Arch; a 260-room Intercontinental Hotel at 1601 Vine St.; and an 800- to 1,000-room hotel at the Girard Estate, directly across from the 12th and Market entranceway of the Convention Center.

The W Hotel has since been aborted; the Intercontinental project has been delayed, probably until 2012 at the earliest; and the hotel portion was no longer being considered for the Girard Estate project, according to those involved.

But delay of the proposed complex featuring two towers with a combined 800 to 1,000 rooms at Broad and Race Streets is perhaps of most concern for convention officials.

The Broad and Race hotel was to constitute the "Broad Street Anchor," while the 1,408-room Marriott and 581-room Loews formed the "Market Street Anchors" to the newly expanded Convention Center.

Hotel officials said having an additional anchor would help attract some of the larger conventions because it would help planners keep their attendees in fewer hotels.

But a project of that magnitude will not be breaking ground anytime soon, said Warren Marr, director of the hospitality and leisure consulting practice at PricewaterhouseCoopers L.L.P. in Philadelphia.

"The larger the project, the more difficult it is to source the debt financing," he said.

Marr said that because of the residential mortgage meltdown, developers were no longer adding residential components to luxury hotels to help underwrite overall costs. That is why the W Hotel proposed for Chinatown, which was to include residential units, was aborted.

"The residential component is not currently a viable way of reducing the risk exposure of the overall project," Marr said. "Before, they could sell those units at a premium price since they were attached to a name brand hotel. Today, the number of buyers available for that type of unit has been greatly reduced."

Developers behind the Palomar and Le Meridien say they feel fortunate they secured financing just before the meltdown.

Ken Reynolds, senior vice president of development and construction for Kimpton Hotels & Restaurants, said the $80 million Palomar is on track to open in early November.

He said a 200-room Kimpton hotel proposed for the Robert Morris building next to the new Comcast Tower at 17th and Arch has been delayed, as well as projects in Key Largo, Fla., and Denver because of the lending crunch.

"Even good developers are having a hard time getting projects financed," said Gary Prosterman, president of Development Services Group, which is developing the $56 million Le Meridien that is scheduled to open in August or September. "Right now, construction lending is virtually at a standstill."

When the economy and the financial crisis will lift is anyone's guess, said Meryl Levitz of the Greater Philadelphia Tourism Marketing Corp., which markets the city and the four surrounding counties to leisure travelers.

"That's the difference with this situation vs. 9/11," she said, referring to that event's impact on tourism. "We're not sure we have experienced the full hit yet."

Hotel occupancy among Center City's 42 hotels was 49.2 percent in January, compared with 58.7 percent the year before, partly because of a big convention here the previous year - the American Library Association midwinter meeting - and the depressed travel industry, according to Smith Travel Research Inc.

"It's a good thing that we don't have these hotels built presently," said Ed Grose, executive director of the Greater Philadelphia Hotel Association, "because the demand isn't there to support them.

"We need to sell the rooms we have now."