Center City Hotel Owners Think W Hotel Is a Bad Bet; Lenfest Says They’re Just Jealous

1441 chestnut street

Photo of 1441 Chestnut Street via Philadelphia Real Estate Blog

Yesterday the Concerned Hotel Owners of Philadelphia published an open letter questioning the wisdom of opening a 700-room hotel in downtown Philadelphia — and particularly with public monies. From the letter:

Philadelphia’s downtown hotel market is not strong enough to absorb another 700 rooms on top of what’s already planned without cannibalizing business from existing properties. The next few years are projected to be generally flat for the Center City hotel market due to moderate increases in supply, but only modest increases in demand and continued pressures on average room rate.

Occupancy currently sits below that of other major East Coast markets, and property revenues are projected to grow far slower than most other major markets over the next three years.

The Coalition contends that the plan for the W and the Element hotels is to attract more demand for the Convention Center, but that the strategy is unrealistic given the Center’s “well-publicized cost issues.” (That latter phrase is a bit of an understatement.) The Coalition doesn’t believe the proposed hotels will attain its optimistic projections of jobs and tax increments. “In fact, we submit that, after adjusting for reductions at other hotel properties… the City may very well end up giving away more money in subsidies than it receives in additional taxes.”

The owners say the subsidies are disingenuous; they are only needed “because there is insufficient demand to support a hotel development of this scale…we find it troubling that as Philadelphia’s public schools struggle to find funding, such substantial capital would be invested in a speculative hotel development project.”

Is it fair to call this project speculative? Well, at least in terms of its time frame, maybe so. At least that’s how it’s felt since the Waldorf Astoria deal for that space (1441 Chestnut) fell through in 2008. Part of the problem has been ongoing litigation between Brooks Lenfest and former ownership partners, but Lenfest says the Starwood-owned property would begin construction in January 2014.

Of course, this Coalition–comprised of owners of Le Meridien, the Four Seasons, the Marriott Downtown, Hotel Monaco, Hotel Palomar, Westin, Embassy Suites, the Loews, the Sofitel, and, especially, the adjacent Ritz Carlton–can’t be said to be unbiased about a new downtown hotel. Lenfest says as much to PhillyDeals’ Joe DiStefano:

“I’m sorry these hotel owners are sort of jealous. All those hotels received substantial subsidies…We think occupancy will be higher for Philadelphia hotels when these are built.”

Center City hotel owners: Stop tax breaks – UPDATE