High cost of making hotel dreams reality

Risks: A sluggish economy, hesitant lenders and an uncertain travel industry have developers of several hotels proposed for Baltimore playing a waiting game.

July 07, 2002|By Meredith Cohn | Meredith Cohn,SUN STAFF

Eight hotels proposed for Baltimore in the past three years would add 25 percent more rooms to a city focused on luring more visitors, but despite enthusiastic announcements by developers at some of downtown's most prominent locations - and even some public subsidies - none has broken ground.

Blame the economy. Blame the Sept. 11 terrorist attacks on the nation's government and financial centers. Blame lenders who believe Baltimore cannot handle more hotel rooms, developers have said for months.

But with travel creeping back up, and lenders cautiously loosening the purse strings, developers say, several of the projects have gained momentum.

The developers insist their hotels will be built, although none has set a groundbreaking date and few have shown where they will get the money to finance the projects.

"You need someone like a John Paterakis. We didn't get all the pieces, but he said, `I'm going to start writing checks,'" said Michael S. Beatty, who heads Paterakis' H&S Properties Development Corp.

Unable to find lenders, Paterakis funded the beginning stages of the Baltimore Marriott Waterfront Hotel and the Courtyard by Marriott, which together added almost 1,000 hotel rooms to Inner Harbor East when they opened last year - the first hotels in the city in about a decade.

H&S has since sold most of its interest in the projects, and the company is proposing to construct a 150-room extended-stay hotel near the others at Inner Harbor East.

Other developers seeking traditional lenders for their hotels have had to wait. And Baltimore has had to wait for its Ritz-Carlton, its Hampton Inn and its Marriott Residence Inn.

Travel is still way down nationwide. Revenue from occupied rooms is off about 20 percent during the week, when business people are typically on the road, said Brian Lancaster, a hotel analyst at Wachovia Bank. Those numbers have made lenders wary of backing multimillion-dollar hotels.

"While travel has come back significantly since Sept. 11, a big piece is still missing: the business traveler. That piece will come back when the economy comes back. It's still sluggish," Lancaster said.

He said luxury hotels have been hit the hardest because traveling business people are finding less costly places to stay.

That has been bad news for the $190 million Ritz-Carlton hotel and condominium project proposed at the Inner Harbor. Its construction schedule has been delayed more than a year, although the developer now says he has an agreement with European lenders to finance the project.

Edward V. Giannasca II, the developer, said the deal will close soon and groundbreaking will follow shortly thereafter on the 225 guest rooms, 97 condos and 500 parking spaces.

The financing hinges on sale of the condos, which provides cash to pay down the debt.

The other hotels proposed in the city are more modest than the Ritz and would cater to business travelers. They include:

A 72-room, moderately priced hotel inside Baltimore's Pennsylvania Station. Amtrak chose the developer, James M. Jost & Co. Inc., in 1999 but delayed the $5 million development while the passenger rail service looked for alternative offices for its workers. Now, the fate of the hotel is unclear as Amtrak faces possible insolvency.

A 176-room Marriott Residence Inn on Redwood Street. A battle with preservationists over historic buildings demolished for the project delayed this hotel by developer Donald J. Urgo and Associates. Then Urgo said the Sept. 11 attacks jeopardized its financing. The city offered tax breaks worth $3.2 million over 10 years, but a city official said a technical glitch in the legislation's passage by City Council has delayed the groundbreaking again. Work could begin this month on the site, which now is just a hole in the ground.

A 171-room Hampton Inn and Suites on Redwood and Calvert streets by Focus Development LLC. The $25 million project was supposed to break ground by the end of 2000 but had to retool physically and financially when the city tagged one of its proposed buildings for a parking garage. The project could start by the end of this month.

A 160-room limited-service hotel in the $100 million Canton Crossing development on the industrial east side of the Inner Harbor. Banker and businessman Edwin F. Hale Sr. is vying to build a cruise ship terminal for the state, and he has since proposed building a second hotel to accommodate those travelers. His schedule is pending approval of the terminal and an agreement with a hotel chain.

A 300-room Embassy Suites or other Hilton brand at One Light Street. J.J. Clarke Enterprises Inc.'s project has been through several incarnations as the economy dried up financing. The latest plan, according to J. Joseph Clarke, company president, is for a 270-space garage and hotel. Clarke is negotiating with FelCor Lodging Trust, a Dallas-based real estate investment trust, to purchase the hotel and Hilton Hotels Corp. to manage it.

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