The potential for hotel development in downtown Washington may be a far cry from the optimistic target set by the Mayor's Downtown Committee in its long-awaited report, which was released yesterday.
The committee's target of 11,000 hotel rooms in the downtown core by the year 2000 doesn't square with any recent estimates based on development trends and assessments of the market by economic consultants and developers.
To achieve the committee's goal, potential developers would have to quadruple the current inventory during the next 18 years. And based on construction schedules for hotels planned for delivery in 1984, developers would have to produce more than 10,000 rooms, or about 600 rooms each year between 1984 and 2000.
"The potential is there and the land is there," observed a major local developer. "But the economics of a hotel today are very difficult."
What's more, a significant increase in hotel rooms would be governed by the absorption rate over a period of years, the developer added.
The committee's target of 11,000 rooms isn't for the entire city, but for a planned, revitalized downtown area extending from the Capitol to the White House and from Pennsylvania Avenue north to M Street. Currently there are fewer than 3,300 rooms in that area.
A recent study by Gladstone Associates, Washington economic consultants, showed that the citywide inventory in 1970 consisted of slightly more than 14,000 hotel rooms. In 1980, the citywide inventory totaled 13,473 rooms--a 4.2 percent decrease over a decade.
It's important to note that changes in hotel inventory between 1970 and 1980 were marked by demolition of older properties and construction of more expensive hotels.
Nonetheless, Gladstone points out in its study--which was prepared for a potential developer--that the citywide occupancy rate has moderated slightly since 1978, averaging 68 percent in 1980. That's down from a peak of 72 percent in 1978; however, room demand increased 10 percent between 1970 and 1980.
In the meantime, increased competition from close-in suburban hotel properties has been largely responsible for static hotel-room demand in the District in recent years, according to Gladstone. Hotel development in Crystal City and Rosslyn has "siphoned off traditionally captive room night demand for the District," the Gladstone study concluded.
It cautioned, "Competitive pressure from these close-in properties can be expected to continue in the 1980s."
Gladstone projects that net gains in hotel-room demand could support up to 4,000 rooms by 1985 and as many as 5,100 by 1990.
"I think the demand is there," said John Fondersmith, chief of the downtown division in the D.C. Office of Planning and Development, when asked about the potential for a hotel development boom. "It's just that we're in an odd period where the interest rates are so high and financing is so difficult."
Fondersmith maintains that, "in more normal times," hotel development would be proceeding at a more vigorous pace.
Four years ago, when interest rates were much lower and financing easier to obtain, dozens of developers gave District officials firm commitments to build hotel and office projects based on the expectation that the convention center would be built. Private-sector commitment was a condition set by Congress before releasing appropriated funds for the convention center.
The center is nearly finished, and the first convention has been booked for early 1983, but the expected boom in hotel development in the vicinity hasn't occurred. In fact, only three hotels are under construction downtown.
Fondersmith said hotel development near the convention center might have been delayed by "a lot of people saying 'I'll believe it when I see it' " as plans for the center were being discussed.
That, however, is no longer a problem, Fondersmith observed. "The market is there in terms of the convention center and a potentially growing business trade," he said. "On the other hand, both in terms of interest rates and borrowing for projects such as these, this is a difficult time."
J. Kevin Lawler, vice president at Gladstone, agrees that, from a "planning point of view," there is latent interest among potential hotel developers. On the other hand, Lawler said, the degree of risk in hotel development is "substantially greater than in office development." Despite the greater risk, "The returns are extremely high," he added.
While most experts agree that the economic downturn has hampered hotel development downtown, the outlook is neither all gray nor all rosy.
"I certainly think that, based on this quarter and the year-end, there will be a reappraisal" of the potential for hotel development, Lawler said.