It is the most glamorous luxury hotel ever built in Washington. The smallest rooms cost $150 a night.The bathrooms are lined with marble, and the bedrooms and lobbies are filled with antiques. Film stars and heads of state stay in its finest suites.
Which hotel is it? Any one of about 20, each proclaiming itself, without question, the very best.
A family of four from the Midwest sightseeing in the nation's capital might have trouble finding an affordable hotel in the District. But the upper end of the market -- hotels serving affluent business travelers -- is crowded.
With four new upscale hotel projects under construction in Northwest Washington alone and even more planned, hotel owners are counting on marketing and reputation to give them an edge in the scramble for a bigger market share.
To attract business travelers, they are expanding their advertising budgets, beefing up sales staffs, and renovating their facilities, including meeting and banquet rooms. They also are emphasizing those special touches -- like designer bathrobes and sumptuous chocolates -- that can turn occasional guests into loyal customers.
"You have to go out and ask for business, no matter who you may be," explained Peter G. Martin, vice president and general manager of the Four Seasons Hotel in the city's West End. "I don't think you can sit on your hands."
Hotel owners admit there is an oversupply of hotel rooms in the city at present, and statistics bear them out.
The occupancy rate for hotels in the District was up slightly in the first five months of this year, to 72.7 percent from 69.5 percent in 1984, according to Lavanthal and Horwath, an accounting firm that tracks the D.C. hotel market. (The average charge per night for an occupied room -- single or double occupancy -- was up as well, from $80.14 last year to $90.56 for the first five months of 1985.)
To improve those occupancy rates, hotel operators say they must go after affluent business travelers. For while the Four Seasons reports that a substantial portion of its business is with overseas visitors and The Embassy Row points proudly to its large number of foreign embassy guests, corporate travelers fill most of the city's hotel rooms -- 82 percent of them, according to the D.C. Hotel Association.
In some parts of the District, expensive hotels aimed mostly at the business market compete head to head. The Holiday Inn Hotel Group recently announced plans for a 456-room Crowne Plaza Hotel, its high-class model, at 12th and H streets NW, just blocks away from the 16-month-old J. W. Marriott on Pennsylvania Avenue. Across the street from the Marriott chain's 772-room luxury flagship, Oliver T. Carr Co. is renovating the old Willard Hotel, a grande dame of a building that sat ruined and vacant for many years.
Three hotels eventually will face each other on the corner of M and 24th streets NW. The 233-room Park Hyatt and the 416-room Westin Hotel, both nearing completion, will compete with the Regent, an opulent 265-room hotel that opened its doors last year.
A 910-room Grand Hyatt is under construction at 10th and H streets NW, and a 900-room Ramada Renaissance hotel, a classy version of a Ramada Inn, is planned at 9th and I streets NW nearby.
Hotel construction is increasing in the suburbs as well, although it is less heavily concentrated in the luxury market.
The D.C. Convention Center, which attracted 314,000 people last year to the city, is cited frequently as a magnet for hotel business. Hotel owners, managers and analysts also contend that the number of tourists will increase further as Washington gains a reputation for luxury hotels and accommodations, and that the low occupancy rates will rise.
But the numbers probably will not increase as much or as rapidly as the hotels want, analysts and hotel owners admit.
"I think it will be several years before we're all doing good business again," said Paul M. G. Astbury, managing director of the Watergate Hotel at 2650 Virginia Ave. NW.
Although hotel owners and city officials hesitated to be specific, they predicted that poorly managed hotels or those with high debt may not be able to survive a shrinking market share. Astbury pointed out that hotels with a strong chain behind them, such as the J. W. Marriott, are not as vulnerable as independent hotels such as the Watergate.
"I predict some of the hotels might even close or change ownership," said Alexander Braune, general manager of the Vista International Hotel at 1400 M St. NW. He has beefed up his sales staff to 20 -- with eight employes devoted exclusively to catering services -- and two months ago he hired the hotel's first marketing director.
Braune added that the city should do more to attract visitors, especially convention-goers.
In 1982, the District tried to do just that. It established a hotel/residential incentive zone in the vicinity of the convention center to encourage developers to build there and thus help revitalize that section of the city's downtown.
The zone is roughly a two-block-wide strip south of Massachusetts Avenue stretching from 14th Street to North Capitol Street. Inside it, developers may exceed building height limits for the area and use a floor-to-area ratio of 8 to 8.5, well above the usual floor-to-area ratio of 4 to 5, according to Paul Hart, an economist for the District's planning division.
So far, the 15-story Sheraton Grande at 525 New Jersey Ave. NW is the only hotel that has been built within the designated incentive zone and taken advantage of the eased height restrictions. The proposed Ramada Renaissance also will be located within the zone.
Although the incentive zone has met with limited response so far from developers, Hart noted that in the past four years, the number of hotel rooms in all of downtown Washington has nearly doubled, from 3,200 in 1980 to 6,200 last year. The competition to fill those is fierce.
"All of the hotels are competing for the same market," said Lou Bolan, managing director of the Washington firm of Colliers, Leggat & McCall Consultants Inc.: business travelers with large expense accounts and expensive tastes.
The tactics include such standard marketing tools as special rates for business travelers and lower prices in the business off-season -- traditionally in the winter and summer. While the average rates quoted by luxury hotels are usually well above $100 per person per night, during off-season weekends, double rooms can be had for $69 at the Vista, $79 at the Mayflower, $94 at the Regent and $95 at The Embassy Row, according to the hotels' reservation desks.
Bolan adds that room rates probably will drop in general over the next 18 to 24 months as new hotels open.
Each hotel opening usually is marked by a fanfare of advertising and public relations, which means that established hotels have to work even harder to keep their customers, the Watergate's Astbury agreed.
"You have to be a little more aggressive, a little more imaginative," he said. These tactics can take the form of lower rates or more subtle competition such as increased luxury and more personalized service.
The first-class hotels are trying to maintain their aura of exclusive opulence. But they are trying to advertise themselves better and target themselves more carefully.
For example, operators of the Four Seasons, a 197-room luxury hotel at 2800 Pennsylvania Ave. NW, said it has been four years since the hotel increased its $30,000 annual advertising budget, which focuses on its catering and banquet facilities. But they added that the hotel does plan to be more aggressive in luring and keeping guests.
"We go basically on our reputation. You have to if you're a luxury hotel," said Martin, the hotel's vice president and general manager. But, he added, "I don't think you can sit on your hands."
Similarly, the Hay-Adams, a 165-room hotel at 800 16th St. NW that overlooks the White House, usually advertises discreetly in upper-income-bracket magazines such as The New Yorker and The Economist, according to managing director James Bennett. But the hotel will be spending about $500,000 this year on its first major advertising campaign since it was bought two years ago by the Murdoch Hotel Co. Recently refurbished, the Hay-Adams now has an average room rate of $180 per night.
Many hotel owners and managers are confident that once their hotel finds a niche, it will become or remain profitable. According to Rose Narva, who helped renovate the Sheraton-Carlton and Hay-Adams before moving on to become director of the 92-room Jefferson Hotel at 16th and M streets NW, if a hotel can create an image that is irresistible to one segment of the upscale or business market, success is assured.
"We are small and unique. We are able to sustain a very highly personalized style of service. We can capture the 2 percent of upscale travelers who want that hand-holding," she said.
Robert Gladstone, president of Quadrangle Development Corp., which is spending $150 million to build the Grand Hyatt, is confident that the market is right for a business-oriented hotel with touches of extravagance. His hotel, he said, can adjust to both expensive and moderate markets because only some floors will be designated for the luxury class; these will come complete with concierges and special lounges.
The Ritz-Carlton at 2100 Massachusetts Ave. NW plans to add this fall a ballroom, expanded meeting space and additional guest rooms; next it plans a $1 million advertising campaign, according to vice president and managing director John Labruzzo. The renovation will cost more than $20 million, he said. Single rooms now go for between $120 and $200 a night.
But, sniff some industry observers, luxury simply can't be marketed with dollars alone. Instead, deluxe hotels must build up a loyal clientele if they are to survive. "Their family has been here, their friends have been here. Money cannot buy that," said Bernard Awenenti, general manager of the historic Mayflower hotel.
Hotel managers say frequent renovations are needed to maintain elegance, and several have recently completed major refurbishing projects. The Mayflower, for example, now with 724 rooms, spent $60 million refurbishing its entire interior.
According to hotel managers, every marble bathroom basin and antique end table helps attract and retain lucrative accounts. Still, all stress that personalized customer service is far more important than fluffy towels in the bathroom and imported chocolates before bed.
"You have to cater to these people on an international level," said Martin of the Four Seasons.
"Once you've built that rapport with a customer, they won't move. It's difficult to entice them out of your hotel," said Bill Johnson, one of the owners of the Regent Hotel at 2350 M St. NW.
Fine furnishings and top-notch service aside, developers agree that the economic success or failure of a hotel frequently is determined long before its doors open. If owners borrow too much to build the hotel, high loan payments will force them to charge high room rates. And if customers do not believe the hotel's location or quality warrant that price, the owner has no choice but to lose significant amounts of income by lowering the room rate, or to sell the hotel.
Owners use a general rule of thumb called a "1 percent rule" to calculate how much rooms must cost for the hotel to be profitable. According to Bolan, the nightly room rate must be at least 1 percent of the cost of building the room. For example, in a 100-room hotel built for $15 million, the average room cost comes to $150,000. Thus, the average room rate should be at least $150 -- about the norm in the Washington luxury market.
But if construction costs run over by $5 million, pushing the total cost of the hotel to $20 million, the minimum average room charge must be at least $200 -- too expensive for the market, according to Bolan. The same rule applies for extensive renovations, which can easily run into tens of millions at deluxe hotels.
Currently, developers are building only luxury hotels on downtown property, Bolan said, because land -- at approximately $1,000 per square foot -- is too expensive to develop lower-yield hotels. Although hotel owners and city officials admit there may be a need for lower-priced hotels in the District, developers are unwilling to build them; only one, a Days Inn near Union Station, is in the planning stages.
Under present tax laws, hotel developers receive depreciation credit fairly rapidly over an 18-year period, which is known as accelerated cost recovery, and can deduct operating expenses from their reported income on tax returns, according to Harvey Coustan, partner in charge of the national tax group in Washington for Arthur Young & Co. Hefty investment tax credits of up to 25 percent of costs also are given to developers for restoring historic buildings. For renovating the Willard into a hotel, office and retail complex, Oliver T. Carr Co. will receive this tax credit on part of the project, according to a company spokeswoman.
(Carr, a D.C. developer, is participating in three of the hotel projects simultaneously: Crowne Plaza, the Willard and the Westin. The spokeswoman noted that although the three hotels are a short distance from one another, Carr chose each project for different reasons. Crowne Plaza, while more opulent than a typical Holiday Inn, will be slightly less costly than other upscale city hotels; the Willard's historical name and image are expected to attract wealthier customers. Carr is acting only as a developer for the Westin and will neither own nor operate the hotel.)
Many developers are attracted to luxury hotels because they perceive them to be a source of constant cash flow as well as profitable real estate investments. What they forget, analysts say, is the constant marketing necessary to keep a hotel filled, which is substantial work compared with negotiating relatively infrequent leasing agreements needed to keep office or residential real estate occupied.
"In an office building, once you lease it up, it becomes 100 percent occupied, 100 percent of the time," said Johnson of the Regent, which was built for $50 million. He added that he was stunned when he realized that his property has a potential of 365 transactions per year for each of the 265 rooms or suites. The Regent's owners have expressed disappointment with the hotel's performance in its first year and are replacing management later this month.
Added W. Wesley Ayre, director of the consulting division at Lavanthal and Horwath: "Hotels have the most perishable inventory possible. If you don't sell that room tonight, you never have the chance to sell that room again [for that night]."