Gaylord Project Relatively Thriving
By Ovetta Wiggins
Washington Post Staff Writer
Monday, December 22, 2008
Swarms of customers dart in and out of such stores as Godiva Chocolatier, Jos A. Bank and Swarovski. Patrons wait more than an hour for a table at McCormick & Schmick's. Nearby, in the shadow of cranes and other heavy equipment, construction workers press on with the next phase of condominiums at National Harbor.
Despite a historic economic downturn that has stalled many projects in the region, work continues and business is generally brisk at the mini-city in the making along the Potomac River, one of the largest developments in the region.
Large gatherings at the Gaylord National Resort and Convention Center, the cornerstone of National Harbor in Oxon Hill, are driving traffic to the development, pumping millions of dollars into Prince George's County coffers and creating spillover tourism that has benefited Old Town Alexandria and the District, officials say.
Gaylord typically offers convention visitors many amenities and appealing rates, people familiar with the market said. The branding of Gaylord also makes the project less vulnerable to economic downturns, said Chekitan Dev, professor of marketing and brand management at the school of hotel administration at Cornell University.
"They will be affected by it, but not like a typical luxury hotel," Dev said of the downturn.
Experts say the development's success is also attributable to a dearth of higher-end restaurants and shops in the area and to developer Milton Peterson's track record.
"He has an outstanding reputation in the financial world of producing successful products and of paying banks back," said Christopher B. Leinberger, a visiting fellow at the Brookings Institution.
Leinberger, a professor and director of real estate graduate studies at the University of Michigan, said he has been impressed by the amount of retail businesses that have opened at the development and the reports from restaurant staff and owners about foot traffic.
Even so, National Harbor is not immune to the malaise. Two restaurants that were planning to open there have pulled out. Many contracts for condo sales have failed to close. And although Gaylord's convention business appears to be going well, individual hotel room bookings are lower than had been expected.
Gaylord officials would not say how far they are falling short in those bookings, but they blamed part of the failure on the slower-than-expected arrival of retail businesses at other parts of National Harbor.
"When we came into the year and set expectations, we anticipated far more transient occupancy there than we had . . . at our other three hotels," David Kloeppel, the chief financial officer of Gaylord Entertainment, said during a recent stockholders conference call.
Restaurateur Lonnie Moore expects to open Ketchup, a sister to one of Hollywood's trendiest spots, at the development in March, but he has abandoned plans to also open Dolce Enoteca e Ristorante, a sleek lounge. Moore said his investors want to see how Ketchup does first.
Starbucks and Maggiano's Little Italy have pulled out as well, not because of concerns over the development's future but because of corporate strategic decisions to slow growth. In the place of Starbucks will be a local coffee chain, Mayorga Coffee of Rockville.
Linwood Stokes, a Prince William County resident, was among the first wave of buyers of National Harbor condos. The condos have been on the market for more than a year, but contracts only began to settle in the fall.
Stokes, who grew up in Fort Washington, said he looks forward to National Harbor coming into its own. He said a salesperson told him during his final walk-through in October that one in six contracts on the condos had fallen through.
Peterson did not respond to interview requests.
Gaylord opened in April and generated $55.7 million in revenue in the quarter that ended Sept. 30, according to financial reports.
The county government collected $41.6 million in tourism taxes during the fiscal year that ended June 30, 24 percent more than in the preceding 12 months. State tourism officials attribute the increase in part to National Harbor.
The resort also has generated almost twice as much hotel tax revenue for Prince George's as all of the other hotels in the county combined.
This year, the county collected $8 million in hotel taxes, $5 million of it from National Harbor, said John E. Erzen, a spokesman for the county.
The $5 million will not go into the county's general fund. Prince George's created a special taxing district for Gaylord two years ago, which requires hotel taxes from Gaylord to pay off a $50 million bond the county issued for the hotel.
But J. Matthew Neitzey, executive director of the Prince George's County Conference and Visitor's Bureau, said the development, which sits off the Beltway like an island, has not had as much of a ripple effect on county businesses as he would have liked.
Old Town Alexandria, meanwhile, seems to be benefiting, said Stephanie Pace Brown, president and chief executive of the Alexandria Convention and Visitor Association.
She said hotels in the city are getting overflow room nights -- exactly how many is unclear -- from Gaylord conventions. And people who have free nights during conventions tend to go to Alexandria to dine and shop, she said.
Since the opening of Gaylord, there has been a double-digit increase in revenue from meals taxes in Alexandria, and citywide hotel room revenue has shot up 29 percent, she said.
D.C. officials say that, in terms of tourism, the District has also benefited from the development. Gaylord markets itself as a destination close to the nation's capital, and as a result, officials said, some of the tourism dollars are flowing up the Potomac.
"The majority of their business is new to the region, so, to that end, it's a net benefit," said William A. Hanbury, chief operating officer for Destination DC, which promotes conventions and tourism in the city. "Many of the guests that are staying at Gaylord are coming to D.C., to our restaurants and shops, and are using our transportation assets. At the end of the day, it's creating more tax dollars and jobs for D.C. residents."
Still, the convention hotels along Connecticut Avenue that, because of their size, are in direct competition with Gaylord have lost some group bookings.
For example, hotel officials at the Omni say they have lost three conventions to Gaylord, and officials at Marriott Wardham Park say they have lost four.
Paul Sharp, director of sales and marketing at the Omni, said the conventions that shifted to Gaylord include one group the Omni used to host and two associations that were looking for a location in the District but opted for Gaylord instead.
"They have added an alternative close enough to the city," Sharp said.
Ed Rudzinski, general manager of the Marriott, said Gaylord offers more exhibitor space than the Marriott. "For the most part, the groups want to be in the District, but we don't have the luxury of the land," he said.
Before Gaylord opened, it had a record-breaking 1 million room bookings, some several years out. Bookings for 2009 suggest an expected occupancy rate of 59 percent, 13 percent higher than the current rate, Kloeppel told Gaylord's stockholders last month.
During the conference call, Colin Reed, chief executive of Gaylord Entertainment, told stockholders that the resort at National Harbor "will make us a lot of money."
"Unfortunately, we've opened it in a blasted tsunami," he said, referring to the economic climate.
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