Philadelphia officials, hoteliers at odds over expansion goals (The Philadelphia Inquirer)

By Suzette Parmley, The Philadelphia InquirerMcClatchy-Tribune Regional News Sept. 17--

Lingering tension between convention and tourism officials and the Greater Philadelphia Hotel Association over how many new hotels the city needs to support the expanded Convention Center played out fully at this week's groundbreaking for the new Hotel Monaco.

The four-star hotel of San Francisco's Kimpton Hotels & Restaurants is being built at Independence Mall. It brought to the forefront once again the debate over hotel development and how much is too much in a still-weak economy.

Though city officials say hotels can't be built fast enough, the organization representing the region's hotel industry contends too many will further hurt existing hoteliers.

"We certainly need more hotel rooms -- about 2,000 more," proclaimed Mayor Nutter, who appeared at Thursday's groundbreaking ceremony at the historic Lafayette Building at Fifth and Chestnut Streets, which is being converted into a Monaco. "This [new hotel] covers about 10 percent of that with 268 rooms."

The hotel will open next summer.

Jack Ferguson, president and chief executive of the Philadelphia Convention and Visitors Bureau -- the agency in charge of booking the Convention Center -- appeared alongside Nutter and chimed in: "We need hotel rooms desperately."

Center City has about 10,700 rooms and could easily use 2,000 more to complement the Convention Center expansion, Ferguson said.

The $786 million addition opened in early March, more than doubling the size of the Convention Center. It is geared toward bringing the largest gatherings here, and Ferguson has long championed having more hotels not only to house conventioneers, but to get them to consider coming to Philadelphia in the first place.

Philadelphia lags other major East Coast cities -- its chief rivals in the convention world -- in hotel rooms. Midtown New York has more than 66,500 rooms, Washington 26,638, and Boston 18,189.

The 268-room Monaco and 136-unit Homewood Suites in University City are the only hotels slated to open next year. Combined, they will add 404 rooms, only about a fifth of what Nutter and Ferguson say the city needs.

"Adding another 2,000 rooms is a healthy number, and our hotels can still run strong occupancies and serve all demand segments," Ferguson said.

But that "build them and they will come" theory does not take into account that existing hotels are struggling, said the head of the Greater Philadelphia Hotel Association, the umbrella group for the region's 87 hotels, including 44 in Center City. The association urges "smart hotel development."

"While there is a need for another anchor hotel with 500 to 750 rooms to support the expanded Convention Center, we must remain strategic," said association president James Gratton, general manager of the 498-room Courtyard by Marriott Philadelphia Downtown. "It is important not to overbuild and maintain an occupancy level near 75 percent. This will allow existing hotels to remain profitable."

Gratton said the city's hotels were not anticipated to recover from the economic downturn until 2013. None have been able to charge rates equal to the levels of 2008 -- when the average daily rate was $171.70, compared with this year's $154.82 -- because of the sputtering economy.

"And we have to remember that the hotels will have to find business when there is not a citywide convention in town," Gratton said. "On average, citywide conventions only occupy our hotels about 25 percent of the time. If we overbuild, hotels will struggle when we are not hosting a convention."

Data from Aug. 1 to 27 from Smith Travel Research, which tracks the hotel industry, showed occupancy among Center City hotels was flat -- at 73.3 percent -- from August 2010. The average daily rate was up 8.2 percent, but still way below 2007 and 2008 levels.

"Absorption of a reasonable number of new rooms is not expected to be a problem, as demand is at all-time high levels," said Peter Tyson of PKF Consulting USA. "Rather, the problem is supporting such development at the current rate levels.

"As one hotel developer expressed to us, 'We have to pay New York-level prices to get the hotel built and support it with close to Baltimore-level room rates. That doesn't work economically.' "

Hoteliers say banks have no interest in financing new hotels when rates are so much lower, and that is why nearly two dozen hotel projects proposed four years ago to support the Convention Center expansion were shelved or put on indefinite hold.

Contact staff writer Suzette Parmley at 215-854-2594 or sparmley@phillynews.com.

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