Why Philly doesn't need more hotels, yet

Hersha Realty Trust, a billion-dollar company that's run from offices at the Penn Mutual complex near Independence Hall by brothers Jay and Neil Shah, operates 77 hotels -- Marriotts and Hyatts, Hampton Inns and Holiday Inns, Hiltons and Sheratons.

Just two of their hotels are based in Philadelphia, with its downtown business center and growing tourist trade, and three more in the suburbs. Even with the newly-enlarged Pennsylvania Convention Center, the Shahs have no immediate plans for more hotels here, though they recently reopened a King of Prussia site as a streamlined Hyatt business hotel.

They like working from Philadelphia because it's close to their main markets, New York and Washington. They grew Hersha with financing from Marlton-based Commerce Bank, and they've expanded with backing from Commerce's successor, Toronto-based TD Bank, whose commercial-lending boss, Bharat Masrani, keeps an apartment in Philly and has become a friend, the brothers say.

The Shahs welcome the newly-completed $1 billion center expansion. But they hope the city will avoid another round of government-subsidized hotel construction, which Neil says the local market can't yet sustain and doesn't need. "Give it time," he said. "We need overnight visitors to stay a second night."

When the original Pennsylvania Convention Center was built, "everyone built a hotel in Philadelphia, and it was tough to show 65 percent occupancy," Neil said. "This industry goes from apoplexy to exuberance more than any other. Philadelphia has been an extreme exaggeration of that."

Instead, "we've been very focused on New York and D.C." The company raised $450 million to buy four hotels in New York and one in Washington last year at depressed recessionary prices. New York's rapid recovery with the financial sector has boosted business travel. Federal speending and the government-depended telecom, defense and computer businesses near Washington keeps the hotel business there growing, even with budget-cutting Republicans gaining power.

Raised in suburban Harrisburg, where their father, an India-born engineer who chairs Hersha's board, worked for the Commonwealth, the brothers moved to Philadelphia for college. Jay attended Penn and Neil got his MBA from Temple.

Though it's taken them five to seven years to get government approvals to build on choice Manhattan sites, it's still easier to do business in New York than in Philadelphia, Neil says. "Up there you have clarity. You don't have that with the rules here," he told me. He praised the Nutter administraiton for its work rewriting the city building and planning codes. I'm hopeful that will work."

Upper Merion, around King of Prussia, is also "one of the more challenging jurisdictions," though it's gotten easier as local officials get to know Hersha, Jay said.

Washington "is much easier to build in" than New York or Philadelphia, said Neil. The tough part around Washington, he adds,  is finding available land.