January 15, 2005
Projects add thousands of area hotel rooms
Source: The Maryland Gazette
Like most other construction projects in Anne Arundel County, Spring Hill Suites in Parole was dropped into a deep freeze after the 2001 terrorist attacks.
But as the economy has rebounded and Maryland's tourism industry surged, so has the appetite of developers looking to get a piece of the hotel action.
Washington-based Bernstein Cos. has begun excavating its site on Admiral Cochrane Drive, with work scheduled to be completed in early 2006. Once finished, it will be the company's second hotel in the area.
"We saw the demand was there," said Marc Duber, chief operating officer. "The location was very desirable."
It's not only Bernstein that has been attracted to the Annapolis area and BWI Airport, the county's economic poles. Four other hotels are under construction and five are in the planning stages, according to the county Economic Development Corp. In addition, two hotels have opened recently, and several others are undergoing major renovations.
By 2007, the number of hotel rooms in Anne Arundel is expected to increase by 21 percent, to 9,042 rooms.
"You wonder when is the saturation point, but all of these hotels do their market research," County Executive Janet S. Owens said. "I think if you look at the BWI area - business growth and employment - there clearly is a great need."
Mr. Duber said his company's $13.5 million Parole hotel, a four-story lodge that will have 120 rooms, fills a particular need in the Annapolis area.
The city needed another upscale inn for business travelers, Mr. Duber said.
Dave Pollin, president of the Buccini/Pollin Group, gave a similar reason after breaking ground for a 27-acre mixed-use development next to BWI earlier this month.
Along with office space, the developer intends to build a $52 million, 280-room Hilton.
"Given its recent history of development and leasing activity, the BWI Business District represents the sweet spot of the entire Baltimore-Washington region, and we have secured the premier spot for the next wave of growth," Mr. Pollin said.
On top of the jobs created by Fort George G. Meade and the National Security Agency, many in the hotel industry see tourism as the county's biggest growth engine.
Tourism in the county was up 20 percent in 2004 from 2003, according to the state's Office of Tourism Development. More significantly, it's up 33 percent from 2000, the base year many analysts use to gauge activity before colored threat levels became daily reminders of the nation's fears of terrorism.
The impact of those visits, officials said, reached $9.3 billion in 2003, with visitors spending $1.7 billion on some form of lodging.
The room tax windfall for the county last year was $10.3 million. This year it's expected to be $11.3 million, up 10 percent.
Developers often see an opportunity to hop right into a hot market, without having to do a lot of work, said Jan deRoos, an expert in hotel real estate investments at Cornell University's School of Hotel Administration.
"That could induce some to think, 'I could steal some of your business and make some money,"' Mr. deRoos said.
Running about $100 a night, hotels in the county maintained a 73 percent occupancy rate through November 2004, about 10 percent better than the national average, according to Smith Travel Research, which tracks hotel statistics nationwide.
In a few cases, occupancy rates are in the neighborhood of 85 percent, said Connie Del Signore, president of the Annapolis & Anne Arundel County Conference & Visitors Bureau.
Ms. Del Signore, who took over earlier this year, said the visitors bureau has developed long-term plans, including bulking up the sales department and pursuing other markets, such as youth sports, reunions and winter packages.
"We're trying to fill in as many gaps as we can," she said.
For instance, two weeks ago, 80 youth ice hockey teams filled about five hotels during what is traditionally a slow period for room sales.
But despite all the discussions of a booming sector of the economy for Anne Arundel, some warn that flooding the area with hotels will drive down rates and, ultimately, profit margins.
Ms. Del Signore said she hopes the buildup will be gradual, because not only will local hotels begin competing with each other, but the county has already begun to go head-to-head with other major cities outside Washington, like Philadelphia.
"We're going to need to strategize to find out what our plan of action is," she said.
In theory, having more money coming through the door means hotels are better off.
But that isn't necessarily the case, according to the Hospitality Research Group, a market research firm that has found the growth in operating expenses tends to wipe out profit gains.
Louis Zagarino, owner of the Comfort Inn near BWI and another hotel in Baltimore, worries that the margins might not work in his favor.
Mr. Zagarino fears that competition, while good for customers, will push prices down as the new hotels jockey for their share of the market. His moderately priced hotel, and others like it, would feel the pinch if they were forced to drop their rates, he said.
"We don't go to bond money people," he said. "If I go out of business, that means I'm selling my house."