Prospects found good for hotel

Convention Center access, headquarters status a plus

September 07, 2006|By June Arney | June Arney,Sun reporter

Baltimore's publicly financed convention center hotel faces significant competition and needs increased convention attendance to succeed, but can make money just by performing as well as the average downtown hotel did in 2004, according to an analysis by Standard & Poor's.

The city's above-average hotel occupancy and room rates fuel competition, but the Hilton Baltimore Convention Center Hotel's ability to serve as a headquarters and its direct link to the Baltimore Convention Center by pedestrian bridge give it a competitive edge, the S&P report said.

"New hotel projects are inherently risky," said Arthur Simonson, a managing director at Standard & Poor's in New York. "However, because of the attributes this convention center hotel has - in Standard & Poor's opinion - it's starting off on much more solid footing than the typical hotel project."

Standard & Poor's report was released yesterday ahead of the Tourism as Economic Development conference that starts today in Baltimore. The conference, whose sponsors include Standard & Poor's and PiperJaffray, which served as underwriter for the bonds financing the Baltimore hotel, will include a session on financing strategies for hotels in convention center markets.

Baltimore's 20-story, 757-room Hilton, to be located on Pratt Street adjacent to the convention center, is slated to open in August 2008.

The City Council approved plans for the $305 million hotel, the city's costliest public project ever, last year after months of intense debate over whether the city should own and finance a hotel.

Baltimore tourism officials have long said that they needed a convention headquarters hotel to attract groups to the city's convention center, which has never lived up to the projections of a $151 million expansion that opened in 1997.

The Standard & Poor's report compared two existing hotels, the Hilton Austin Convention Center Hotel and the Hyatt Regency Denver at Colorado Convention Center, with the Baltimore hotel and the San Antonio Convention Center Hotel, which are under construction.

The 1,100-room Denver Hyatt has performed at "well above" break-even since opening in 2005, the report said. The Hilton Austin, which opened in 2003, initially saw occupancy and room rates below forecasts but has picked up as the market has rebounded.

According to the report, the Baltimore hotel will break even if its revenue per room reaches $117 in 2011. The market as a whole had revenue of $122 per room in 2004, the report said.

Report questioned

Heywood T. Sanders, a professor of public administration at the University of Texas, San Antonio, who has criticized public financing of convention hotels, questioned why the Standard & Poor's report did not look at projects with a longer track record.

He contends that convention center hotels seldom capture the business they promise and that a glut of convention space makes it a buyers' market. Meeting planners are used to having deals sweetened with free exhibit space, free hotel rooms and other bargains.

"The critical issue in Baltimore is not just will the bondholders be paid," Sanders said. "The question in Baltimore is `Will the investment in that hotel pay off in increased convention business?' Can this major new hotel succeed in increasing the pie without taking away business from existing properties?"

Ronnie L. Burt, interim president and chief executive officer for the Baltimore Area Convention and Visitors Association, said the Hilton will not rely solely on conventions. The hotel also is expected to attract leisure travelers attending sporting or other events, sports teams, family members visiting Johns Hopkins or the University of Maryland and people attending Hippodrome events, Burt said.

`Little room for error'

"A convention center hotel has been talked about for years in Baltimore," he said. "There has been a void for this particular product with customers."

Despite the report's largely positive overtones, Standard & Poor's Simonson said there is reason for caution in making forecasts about hotel ventures.

"I don't want to paint anything too rosy," he said. "It's still a hotel project. The way they're financed leaves very little room for error."

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