Hotels are big business in Seattle

Thursday, January 11, 2007

Seattleites fancy themselves a welcoming bunch -- provided that guests come, spend their money and leave. With a rash of new high-end hotels slated to open in the next two years, the city is poised to help more and more visitors do just that.

Seattle's hotel market is booming in the core. Although hotels are normally built at a rate of one every other year, recent demand has fueled construction on at least four hotels slated to open by 2008, and three opened in 2006.

At least six more hotels are in the design and planning phases, and developers are talking about still more.

Vacancy rates have fallen to near-record lows, and the average room price has spiked above $150 per night -- about $50 higher than the national average.

Tourism and city officials tout Seattle's growing popularity as the reason -- and hope that hundreds more feet will patter through the central business district at night.

"I see no downside to this," said City Councilman Peter Steinbrueck, chairman of the Urban Development and Planning Committee. "That's a real sign of optimism for the future of Seattle and our economy and our attractiveness."

Downtown Seattle finished 2005 with about 6,600 hotel rooms ranked between three and five stars. By 2009, that number could top 9,000 if every proposed construction project is completed, according to Colliers International Hotels in Seattle.

"I think Seattle has gotten more exposure in a lot of ways -- from the Seahawks in the Super Bowl to the cruise industry," said Ann Peavey, manager of the citywide concierge downtown. "All of a sudden, we're not this podunk town in the Northwest."

Indeed. Perhaps more stunning than the number of new rooms is the posh quality of the product -- Seattle's new hotels will cater to the high-rolling crowd, promising gourmet food, grand ballrooms, spas and all manner of luxuries associated with a strong economy.

The current spate of development should be complete in 2009, just in time for the 2010 Olympics in Vancouver, said Karl Kruger, president of the Seattle Hotel Association.

"It's fabulous," he said. "With the entire world being focused on this area, we're all going to benefit."

Seattle's hotel development follows a national trend. Experts say baby boomers are traveling more in their free time, and bulging bottom lines have made business travelers more willing to drop upward of $500 per night.

"Guests love it. The fancier and more exotic, the better," said Jim Norman, partner and co-chairman of Holland & Knight's global hospitality and resorts group. "There is money to spend on luxury, and people are in the mood to spend it."

Many of the buildings opening in Seattle are some combination of hotel rooms and condos -- a phenomenon that the Urban Land Institute calls the 21st-century version of resort time shares.

"People in the real estate industry would describe condo-hotels as right up there with bottled beer and sliced bread," Norman said.

The condo-hotel trend appeals to developers who want to presell the condos, thus reducing building costs.

"It's a ticket for them to get financing," said Chris Burdett, senior vice president of Colliers International Hotels. Plus, the condos tend to sell for about 25 percent more per square foot, the approximate value of living someplace with a hotel lobby and concierge, room service and a spa, he said.

That financing model, however, cannot be sustained if the condo market becomes saturated, Burdett said.

"Now I'm starting to question the vehicle for financing," he said. "We compete with the guys who are just building condo towers."

The most recent hotel to open is already giving sports fans a place for shut-eye. The $40 million Silver Cloud Hotel Seattle-Stadium, located next to Qwest Field, opened partially Dec. 28.

Before deciding to build, hoteliers consider occupancy and room rates, said Brian Zuber, chief operating officer of Silver Cloud Inns and Hotels.

"We just certainly see a need for a hotel in that area, basically is what it comes down to," Zuber said. "Obviously, you can justify a more expensive hotel in Seattle than you can in Yakima."

About 150 of its 211 rooms are online and more open each day. The hotel should be fully ready by spring along with its restaurant, Jimmy's on First, Zuber said.

Among the hotels opening in 2007 is the second tower on the Sheraton Seattle Hotel, which will surpass the Westin Seattle as the largest hotel in the city and become the only Seattle hotel with more than 1,000 rooms.

Will the market ever be saturated with swanky hotels?

Real estate investment trusts and institutional investors, such as The Blackstone Group, a prominent New York equity firm, continue to see hotels as a good investment, Norman said.

"The value now in terms of the resale of hotel properties, and particularly bundling them into portfolios, is a very profitable business," he said. "As the economics improved, the desirability of hotels as a real estate product increased."

The big drawback for hotel development is that once the market is strong enough to support investment, the economy begins its slack cycle, meaning that new rooms open as demand wanes, according to the Urban Land Institute's 2007 Emerging Trends in Real Estate report.

Nationwide, nearly $30 billion will be spent on new hotel construction over the next two years, the report says. But new hotels are an arduous investment compared with office or apartment projects because they take twice as long to build and cost twice as much.

The Urban Land Institute's predictions for the nationwide hotel market are that, "Everything is fine until '09 ... as long as the economy holds up, terrorism doesn't roil the markets and menaces like the avian flu never materialize."

Folks in Seattle's hotel industry remain stoked.

"Developers do not decide to build new products in markets where they don't see a real bright future," said Don Welsh, chief executive of Seattle's Convention and Visitors Bureau. "We are absorbing the new inventory without dropping occupancy or average rate."

And even hotel managers seem to be singing: the more, the merrier.

"We're doing wonderful," said Paul Sposare, director of sales and marketing at the Pan Pacific Seattle, a five-star hotel that opened in November. "Business is great, actually. Being the newest hotel that's opened has been really exciting."

Sposare welcomes more five-star hotels, including the Four Seasons that is slated to open in spring 2008.

"I'm very excited to have them come to the city," he said, adding that big and fancy hotels "help Seattle to be an international player."

The new hotels could even be a boon to the people who can't afford to stay in them -- from the trickle of extra tourist dollars to the hundreds of newly created service-sector jobs.

Organized labor leaders are keeping a close eye on the development in hopes of gaining membership and raising the average wage of hotel workers, said Jessica Lawson, community affairs coordinator for the local office of UNITE-HERE, a union with 4,000 members in the state.

The national Hotel Workers Rising movement has chosen Seattle as one of its campaign cities. Seattle hotel workers earn about $9.72 per hour, which is on par with the national average but lower than other large cities such as Boston and Miami, she said.

About 12 percent of the hospitality workers in downtown Seattle are unionized, she said.

"It's great that there's all this hotel development," Lawson said. "Plus, it's jobs that are going to stay here, so if we can make these the good, middle-class jobs, then that's our goal."