Friday, July 11, 2014
Inquirer Daily News

Center City hotel owners: Stop tax breaks - Update

'The wrong time, and the wrong project'

Center City hotel owners: Stop tax breaks - Update

The hotel site, now a parking lot, was leveled in 1999, eight years after the One Meridian fire. (Ron Tarver / Staff Photographer)
The hotel site, now a parking lot, was leveled in 1999, eight years after the One Meridian fire. (Ron Tarver / Staff Photographer)

UPDATE: Developer Brooks Lenfest responds here. EARLIER: A coalition of Center City Philadelphia hotel owners has written Mayor Michael Nutter and City Council Chairman Darrell Clark to protest planned tax breaks for Chestlen Development Group's proposed W and Element hotels at long-vacant 1441 Chestnut St. They say the site is not blighted; market financing is available; the tax breaks will probably be larger than any new taxes the hotels generate; Philly can't afford more tax breaks when its public schools are underfunded; and there are already more hotels in Philly than city business and tourism can support. Chestlen principal Brooks Lenfest was unavailable for comment at his Bala Cynwyd office when I called. The letter: 

As members of Concerned Hotel Owners of Philadelphia, we write to you to respectfully express our deep concern over the City’s plans to create the Headquarter Hotel Tax Increment Financing District for the construction of a 700-room hotel at 1441 Chestnut Street.

Our coalition members appreciate the support the City and Council have always shown for the hotels in Philadelphia. You have been tremendous advocates, working with us to creatively address issues and attract visitors to the City and our hotels. We recognize that these proposed efforts to subsidize the development of a W and an Element Hotel are intended to build business at the Pennsylvania Convention Center – a goal we all support.  But this is the wrong time, and the wrong project. 

Philadelphia’s downtown hotel market is not strong enough to absorb another 700 rooms on top of what’s already planned without cannibalizing business from existing properties. The next few years are projected to be generally flat for the Center City hotel market due to moderate increases in supply, but only modest increases in demand and continued pressures on average room rate. 

Occupancy currently sits below that of other major East Coast markets, and property revenues are projected to grow far slower than most other major markets over the next three years.

If the W development project was a true headquarters hotel – a 4-star conventional property adjacent to the Convention Center – it could help sales efforts and this hotel community would be more supportive. However, this development is too far from the Convention Center to have the intended effect.

Furthermore, the real key to attracting more convention demand is overcoming the Convention Center’s well-publicized cost issues. We commend the effort of the Commonwealth and the City to address these obstacles, but it is likely to be several years before the full impact of these changes are felt and the situation improves in a meaningful way.

In fact, we submit that, after adjusting for reductions at other hotel properties, the proposed project will not generate nearly the amount of tax increment or jobs that the developers claim, and the City may very well end up giving away more money in subsidies than it receives in additional taxes. We can look at the City of Baltimore as a cautionary tale.

The City funded the 757-room Hilton Baltimore Convention Center Hotel, which has vastly underperformed projections, lost money and become a financial drain on the City.

As Chestlen Development seeks $33 million in TIF grants from the City and Redevelopment Assistant Capital Program monies from the Commonwealth, it has inaccurately represented the property as “blighted.”

As we all know, the site is prime property in Philadelphia’s downtown core – adjacent to The Ritz Carlton and across from City Hall. In truth, blight is not the issue here; public subsidies are needed because there is insufficient demand to support a hotel development of this scale. Unlike a few years ago, banks and a variety of lenders are now lending on new hotel construction projects – where the market supports them. And if a hotel development at that location was economically viable, a developer could build it without a 27 percent subsidy.

Economics aside, we find it troubling that as Philadelphia’s public schools struggle to find funding, such substantial capital would be invested in a speculative hotel development project.

There is a natural alignment of interest between downtown hotel owners and the City. If this project could produce the incremental demand that is projected, we would all benefit and we would all be supportive. If the project fails to generate substantial increased demand, as we believe it will, it will hurt the City and us. We ask that you reevaluate any consideration to granting public monies to a project that is likely to imperil our downtown hotels and negatively impact the City’s finances.

Sincerely,

CONCERNED HOTEL OWNERS OF PHILADELPHIA

HEI Hotels & Resorts, owner of Le Meridien
Host Hotels & Resorts, Inc., owner of The Four Season; Marriott Downtown
KHP Fund II, L.P., owner of Kimpton Hotel Monaco; Kimpton Hotel Palomar
LaSalle Hotel Properties, owner of the Westin; Embassy Suites
Loews Hotels & Resorts, owner of The Loews Philadelphia Hotel
Pebblebrook Hotel Trust, owner of The Sofitel
Philadelphia Hospitality Partners, L.P., owner of The Ritz Carlton

** This is a partial list of coalition members; other hotel owners have expressed their commitment to and support for this effort and will be added.

Cc: Philadelphia Deputy Mayor Alan Greenberger
John Grady, President, PIDC
Members of Philadelphia City Council

Joseph N. DiStefano
About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

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