High-end hotels plan 1,800 new rooms in downtown D.C., shaking up the market

Some of the biggest names in hotels are moving to deliver more than 1,800 high-end rooms in downtown Washington in coming years, a surge that analysts say could reshape the city’s hospitality industry.

Construction is already underway on the 1,175-room Marriott Marquis convention center hotel, a project that city officials spent nearly two decades planning and assembling and which Marriott fought aggressively to control. The hotel is expected to be finished in the spring of 2014.

Ten blocks south, Donald Trump’s hotel company is negotiating the details of a 261-room hotel it plans to build at the Old Post Office pavilion. That could open as soon as 2016.

Now executives at Hilton Worldwide are negotiating a deal with developers of CityCenterDC to build a 370-room Conrad hotel downtown, according to sources familiar with the discussions.

The sources spoke on the condition of anonymity because the negotiations have not been finalized and are subject to confidentiality agreements.

Hilton and the development team, led by Hines, declined to comment. The first phase of CityCenter is under construction and includes offices, condominiums and apartments.

Conrad Hotels & Resorts is Hilton’s contemporary luxury brand, named after its founder, Conrad N. Hilton. The brand has been focused mostly on international markets, but company executives are now pushing to expand in the United States.

Opening a Conrad hotel on New York Avenue as part of the second phase of the $950 million CityCenterDC project would give Arlington native Christopher J. Nassetta, Hilton Worldwide’s president and chief executive, a luxury hotel in downtown Washington after Hilton failed to win a bid with the federal government to develop the Old Post Office into a Waldorf Astoria, Hilton’s top luxury brand.

Tom Baker, a consultant to hotels and managing director at Savills, said opening a Conrad as part of CityCenterDC could put Nassetta in close competition with Marriott, which will operate the District’s 1,175-room convention center hotel under its Marriott Marquis flag and likely will ask similar room rates to Conrad.

Adding 1,800 rooms at luxury or near-luxury levels in the span of a couple of years could drive down room rates in other hotels in the city. David Loeb, managing director and senior real estate research analyst at Robert W. Baird & Co., said a major question will be what effect the Marriott Marquis would have on the city’s convention business. “There is a lot of speculation that in 2014, when the Marquis opens, that the convention center calendar will look much better,” Loeb said.

Convention business is particularly important to Washington at the moment, Loeb said, because the inactivity of Congress on Capitol Hill means fewer lobbying firms, associations and the like are bringing visitors to town. If the convention center business picks up, Loeb said, the Washington hotel market should be able to absorb the new rooms.

“I think it will be fine in the long run,” he said. “It’s a very robust, high-demand market.”

District officials expect the Marriott Marquis to give the District and its convention arm, Events DC, a leg up on National Harbor in trying to attract major conventions to the area.

But Marriott will operate both convention hotels — the Marquis and the Gaylord National Resort & Convention Center — and Loeb expects Marriott to balance the needs of both. “I think Marriott will look for those two hotels to work in complement,” he said.

Jonathan O'Connell has covered land use and development in the Washington area for more than five years.
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