A photograph caption in Monday's Washington Business failed to note that the name of the Regency Hotel, at 2350 M St. NW, has been changed to the Grand Hotel.
Hotels in the District and Northern Virginia, some of which already are discounting their rates to cope with rising vacancies, will suffer further financial stress from a flood of nearly 11,000 new rooms planned for completion by 1990, according to a consultant's report.
The report, commissioned by the Washington Convention and Visitors Association, concludes that occupancy rates could fall as low as 53 percent, a level generally considered untenable by industry experts, who say Washington may have a large number of hotel failures.
"I have looked with a little bit of horror at the number of rooms refurbished or developed in the area," said Laurence Geller, executive vice president of Hyatt Development Corp., which will be managing two new hotel properties in Washington. "The obvious conclusion is that a number of hotels will go out of business or change hands."
In Washington and close-in Northern Virginia, 31 projects for new hotels or additions to existing hotels are under construction or planned through 1990. That will mean in just five years a doubling of the number of rooms that were added in the 1970s, according to a copy of the report obtained by The Washington Post. The report was prepared by GA Partners Inc., a Washington consulting firm that also did the original study for the Washington Convention Center.
In addition, the Washington Convention Center, a major factor in filling the District's hotel rooms, is "confronting space limitations and will likely need to be expanded in the early 1990s," the report said.
In August and September alone, more than 600 new hotel rooms will be available in Washington, with the opening of hotels including the Park Hyatt at 24th and M streets and the Willard Hotel at 14th Street and Pennsylvania Avenue.
Occupancy rates already have begun a downward trend in the city. For the first five months of this year, the average hotel occupancy was 66.9 percent, down 5.5 percent from the same period last year, according to the Hotel Association of Washington.
At the same time, average room rates are going up. The average room rate for a Washington hotel rose from $85.20 in the first five months of 1985 to $89 in the same 1986 period, according to the hotel association. The average room rate for all U.S. hotels was $53.81 last year, according to Laventhol & Horwath, a consultant to the industry.
"The overbuilding was obvious," said Austin G. Kenny, executive vice president of the Washington Convention and Visitors Association. "You didn't need a study to go in and look at the heavy, heavy construction."
As examples, he cited the addition of hotels such as the Park Hyatt in the city's West End, the Willard Hotel on Pennsylvania Avenue and the Comfort Inn, Grand Hyatt and Ramada Renaissance, all in the Convention Center area.
In addition to the problem of overbuilding, Washington hotels face increasing competition from hotels in Northern Virginia and Maryland, where building costs are cheaper and business travelers are attracted to the suburban economic centers. The average room rate for the Washington area drops to $75.75 when the Virginia and Maryland suburbs are included, according to Laventhol & Horwath.
If the projected 53 percent occupancy rate is reached, industry analysts agree that some of Washington's hotels are going to be in trouble. In fact, some hotels reportedly already are -- and are offering huge discounts off their normal rates to fill rooms.
"I was a little surprised by the report," said Leonard E. Hickman, executive director of the Hotel Association of Washington. " The overdevelopment has concerned me for some time," he said. "Where is it all going to end?"
In spite of such gloomy forecasts, Hickman said his office receives calls daily from developers interested in feasibility studies for hotels in Washington.
"I say to them, 'Please look at where we are right now and what we know of future construction.' . . . Sometimes, one wonders if they're listening. They seem to want a study that justifies their going ahead."
Hickman said those callers frequently are developers rather than hotel companies, which reflects what has become a national trend in the hotel business.
Until the late 1970s, hotel development was largely driven by companies such as Hyatt and Holiday Inn, whose business was hotels and who went out and found financing for the hotels they built and operated. Now, it is frequently the developer who has the site and the financing and who then goes out and finds a hotel company to manage the operation.
Several of the hotels recently completed or now under construction in the District are examples of the phenomenon. The Oliver T. Carr Co. is developing the Willard Hotel, which is managed by Intercontinental Hotels. Both the J. W. Marriott Hotel on Pennsylvania Avenue and the Grand Hyatt were developed by Quadrangle Development Corp. and are managed by the hotel companies that give them their names. The Park Hyatt, also managed by Hyatt Hotels, was developed by Mortimer Zuckerman's Boston Properties.
"It does make a difference that investors and developers are more involved," said W. Wesley Ayre, head of the consulting division of Laventhol & Horwath. "More hotels are being built because there are more players in the game. They're more entrepreneurial and prepared to take greater financial risks."
The ability of many in the hotel business to take those financial risks may well be tested during the next few years in the area, where experts say that small hotels not affiliated with hotel chains and older, unrenovated hotels are going to have a tough time surviving.
Perhaps the most troubled of the hotels will be the high-priced, marble-lined and antique- and flower-filled establishments known as the luxury hotels, according to industry officials, who say that the number of travelers who can afford rooms costing hundreds of dollars a night simply will not be enough to fill the pricey establishments that are proliferating in the District.
Kenny said he hopes the report will make people in the industry act to forestall the 53 percent occupancy figure. "We feel we can make an impact on that figure with stronger marketing," he said.
The Convention and Visitors Association is meeting regularly with as many as a dozen general managers of hotels in the District, working on marketing strategies for groups that have not been targeted previously by District hotels. Kenny declined to comment on which groups were being studied.
"The Convention Center was a major factor in the absorption of 6,000 new rooms at the beginning of the decade," he said. "We have to find something like that for the second half -- and there will not be anything that dramatic."
Some hotels in the city already are attacking the problem. The Sheraton Washington, the Omni Shoreham and the Washington Hilton have combined in a marketing venture known as the Connecticut Collection, in which the three hotels offer their combined room and meeting space to attract groups of between 2,000 and 3,000 guests.
"These three hotels have been around more than 20 years," said Washington Hilton general manager Bill Edwards. "Why did we just invent this? We haven't needed it until now. . . . Every hotel has to sharpen its own pencil."
"We're going to have to find new markets," said Christopher Isherwood, general manager of the Ramada Renaissance on New Hampshire Avenue. "Tourists especially. We can't just live on convention and meetings and businessmen."
"As a community, we have to promote," said Thomas Gurtner, general manager of the Westin Hotel at 24th and M streets. "We're one of the largest industries in the area in terms of tax dollars."
Some in the hotel community say they think the best thing that could happen would be for developers and hoteliers to reexamine their proposed hotels.
"This report presumes that all these hotels will be built. I don't think, after those statistics surface, some of them will be built," Edwards said.
However, the overbuilding of hotels is too far along to prevent many of the occupancy problems ahead, according to Dick Nelson, regional vice president of Hyatt Hotels and president of the Washington Hotel Association.
"It seems to me, it's a problem for the community and the hotel business to work together on. We have to promote Washington as a destination. . . . Walt Disney's not going to come in and build a Disney World here."