Corridor Hotel Market Needs No Wake-up Call

By Mark R. Smith



Two years ago, it could have been said that the hotel industry was not a happening place to be. It was hit hard by the then-snowballing recession, followed by 9/11 and the ensuing lack of thaose all-important discretionary dollars.

Yet, not only has the Baltimore-Washington corridor hotel market been able to sustain many of the recent financial blows, but also a number of new hotels have opened - or will soon - in a market that had already come a long way in the prior decade. In fact, heading north on the B-W Parkway, there's even a sign near the Nursery Road exit that directs motorists to the "BWI Hotel District," which existed more in the hopes of area marketers than in reality 10 years ago.

Today, hotel business has not only improved, but also proved to be a nice investment in these times of continuing unrest. "The hotel industry is strong, travel is clearly picking up, and we have a terrific mix of business and personal travel here," observed Neil Shpritz, executive director of the BWI Business Partnership. "That tends to keep the hotels full all week. Remember, our location, just 15 minutes south of downtown Baltimore and 30 minutes north of downtown Washington, is a tremendous selling point."



Readying For Recovery

Those points have obviously been understood in Howard County as well, with new projects such as the Hilton Garden Inn near Snowden River Parkway and Route 100, the Homewood Suites in Columbia Restaurant Park, the Comfort Inn & Suites in Jessup and Marriott Courtyard at National Business Park.

As for the BWI Business District, a new Residence Inn by Marriott opens this month at Arundel Mills. The buzz also has it that a Staybridge Suites and Country Inn & Suites may also soon be added to that sector of the market.

In addition, a major signage program should be ready to complement what's already in place later this year. Shpritz estimated that there are now about 35 hotels in the district and noted that occupancy has hovered around 80% for the past year ("which is very high by industry standards"), with the average room rate at $102.43 across the board for limited and full-service properties.

Bill Moyer, director of the hotel brokerage for Donohoe Real Estate Services in Washington (which is building the Marriott Courtyard at National Business Park), mentioned the slowdown in the building, planning and delivery of hotels from mid-2001 through late 2002. "But I think what's happened is that people, as they look forward, want to take advantage of what they perceive as the recovery, with new products coming online in excellent locations.

"So, the areas of increased business demand are where hotels follow," he said, noting that the availability of attractive financing is a factor, too, especially since "it's only a couple of points higher than today's historically low home financing rates."



A Resilient Market

Moyer also offered an interesting analogy about the corridor market. "It's similar to the area between Washington and Dulles International Airport, because both offer a big city, a vibrant airport and available commercial space. I think the glut of space available today is a temporary market problem."

Moyer and Shpritz aren't the only observers who are bullish on the corridor. So is Dave Pollin, president of The Buccini/Pollin Group in Alexandria, Va., which has just announced plans to build a full-service Hilton at BWI on a to-be-announced site.

The company owns the Springhill Suites By Marriott and recently sold the Comfort Suites, both near BWI. He pointed out that the BWI lodging submarket didn't take the hit the regional and national markets did. "That put people on notice that there are some resilient demand generators in that market. It's not as if it was surging before. It just didn't drop."

It's when secondary or tertiary brands (that may not be as highly regarded) are built that a market can become "watered down," Pollin continued. "But we're seeing more evidence of that now in the corridor. In the business, we like to say that our most dangerous competitor is our least sophisticated, or those that immediately drop rates at the first hint of trouble. That's not a long-term winning strategy."

And what of the recent high office vacancy rates? "We look at the amount of occupied office space when making a decision on a new hotel. The vacancy rate doesn't matter," he said. "If it's high, that could be due to overbuilding. We focus on the amount of square feet occupied in that market, which continues to grow. I think the corridor market is one of the best in the country (along with the Florida Keys), since it has the most government and military travelers in the country. That's an incredible backstop for demand."

Paula Rinker-Wicks can attest to that fact. She's vice president of sales and marketing for Greenbelt-based Baywood Hotels, which opened the Hampton Inn off Route 100 at Executive Park Drive in Columbia two years ago and is building the Comfort Suites Columbia at Routes 1 and 175 in Jessup (in addition to planning to develop the Holiday Inn franchise product Staybridge Suites near BWI). "We're building the Comfort Suites due to the success of the first hotel," she said. "We feel the area is conducive to further development because of its proximity to the Columbia Gateway commercial area and its location on a major interstate."

Another local company that will soon open a hotel - a second at Arundel Mills -is White Marsh-based Skye Hospitality, which opened the Hampton Inn & Suites there last September and will follow with the Residence Inn By Marriott this month. But General Manager Doug Bither said the company is "absolutely not" just catering to the mall, even with Medieval Times Dinner Theatre & Tournament, which will seat close to 1,000 people, opening in August.

"The idea here revolves around corporate business," he said. "We're located close to Ft. Meade, and people there often need an extended-stay hotel. Also, we're in the BWI Business District and just a few miles west of the airport's new rental car facility, and we're hoping to catch business from people who want to stay on the south side of BWI, because backtracking to drop the car off will be a waste of time."



Smiling Investors

The hotel market became "dormant after 9/11, the recession and the sniper incident in the D.C. area, which affected the corridor in general," observed Marc Magazine, managing director with Insignia ESG Hotel Partners of Bethesda, who brokered the recent sale of the Comfort Suites at BWI. "Then as things calmed down, the stock market tanked due to all of the overstated earnings; the investment dollars went into commercial real estate, and investors were happy with a 6 to 8% return on office buildings, retail sites and apartments."

Then came the next logical step. "That was to take the real estate investment dollars and buy hotels, then get a return of 11 to 12%. Couple that with BWI building 16 more gates for Southwest Airlines and offering early morning flights, and demand for the hotel space that has already increased will be even greater," he predicted.

Moyer agreed, as new product comes on line during times of increased demand. "Timing is very critical to hotels. If they're built in soft markets, they never really get going," he stated. "But the corridor has seen the demand generators increase in terms of the tech and biotech businesses. And BWI, as we all know, is expanding, so that corridor is just getting more attractive [to hotel developers]."