Too many hotel rooms, too many vacancy signs

May 26, 1991|By Maria Mallory

At the corner of Baltimore and Hanover streets, the Lord Baltimore Radisson Plaza Hotel is both a reminder of days gone by and a haunting symbol of the here and now.

The 70-year-old hotel has twice been renovated in efforts to restore its historic splendor. Yet its financial troubles -- including $16 million in failed loans and seizure by the Federal Deposit Insurance Corp. -- reflect an advanced stage of the financial malaise currently infecting the hotel industry.

Hotels -- here and across the nation -- are hurting.

As a group, lodging stocks were Wall Street's worst performers in 1990. Industry giant Prime Motor Inns Inc. filed for bankruptcy protection in September. Bethesda-based Marriott Corp., seeing red ink for the first time in decades, lost $54 million in the fourth quarter of 1990 and watched earnings continue to slip this year.

The regional picture isn't much better. Occupancy rates have slumped, falling lower than the national average. Bookings are harder to come by. And many hotels have added salespeople to bring in new business.

There are plenty of troubled hotels in the Baltimore area. The Embassy Suites in Hunt Valley, the Days Inn in Edgewood, the Best Western on Howard Street and the Towson Sheraton are among metropolitan-area hotels working under court supervision to reorganize and regain control of their finances.

The recession, combined with an oversupply of hotel rooms, continues to sap the financial strength of even the healthiest hotels, while exacerbating the problems of the Lord Baltimore and others.

The Persian Gulf war also deserves blame for abruptly curtailing corporate and leisure travel and reducing the demand for hotel rooms.

"Although the initial massive drop came the day after the war started, it was quite obvious to everyone [that] it was not specifically a war issue," said Robert M. Campbell, an industry-watcher and president of local ad agency Campbell-Ginn & Assoc.

Leading up to the recession is a familiar story: The go-go '80s brought quick and furious growth, thanks to aggressive financing and ambitious development backed by easy money. In the early years of the decade, many developers chose the hotel business as a means of sheltering other income.

Against the backdrop of favorable tax laws, which allowed hotels to be depreciated quickly, the rejuvenation of Baltimore's downtown and the Inner Harbor fueled the construction of new hotels in Baltimore during the '80s. The city desperately needed hotel rooms to support its new Convention Center, for example, and to make that $52 million investment of city and state funds pay off.

Since the Convention Center opened in 1980, the number of hotel rooms in the Baltimore area more than quadrupled, to 13,000.

The boom years of the '80s provided enough traffic in and out of Baltimore to sustain the hotel market. Occupancy rates stayed at, or comfortably above, the generally accepted break-even point of 60 percent to 65 percent. That was then.

"The city went beyond what the Convention Center could absorb," said Joseph R. Kane, general manager of the 702-room Omni Inner Harbor Hotel, who estimates there are about 2,500 excess rooms in Baltimore.

The hotel business is extremely sensitive to economic conditions. In good times, corporations liberally send their managers on road trips that require hotel stays. Business partners and customers come to Baltimore to meet with local companies. Meetings, seminars and parties are booked at hotels as well.

When the economy is soft, corporate travel drops off, meetings are canceled and seminars are postponed. Hotels, which depend on company activities and group sales for more than half of their revenues, suffer.

As of July 1990, Baltimore hotels were hurting. Occupancy levels fell to an estimated 58.7 percent, according to research done by Economics Research Associates. The national average at the time was about 65 percent.

At some hotels, the rooms just weren't filling up fast enough. Many hotels had been piled high with debt leveraged against optimistic occupancy rates. And by early 1991, the war and cuts in corporate travel budgets forced hotels to scramble for their share of a shrinking pool of reservations.

Meanwhile, downtown's center of gravity was shifting toward the Inner Harbor. Hotels built around the waterfront overshadowed competitors, such as the Lord Baltimore, that once had been popular for their locations near Charles Center.

Today, competition is tough. Marketing, service and amenities are key, as hotels vie for customers.

Stouffers boasts the glitz of an upscale mall within its complex. The Omni, the city's largest hotel, is trying to win conventions that are too small to rent the Convention Center. Harrison's Pier 5 Clarion Inn, a tiny 71-room hotel, hopes to drum up small-group business with the slogan, "How would you like to be the only group in the house?"

And though some won't admit it, many hotels have new-found flexibility on rates.

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