BOSTON—High hotel performance marks have given Boston city officials the confidence to green light up to seven hotels comprising no more than 2,700 rooms in proximity to the Boston Convention and Exhibition Center.
Year-to-date July, Boston occupancy was up 2.6%, average daily rate increased 9% and revenue per available room rose 11.8%, according to data provided by STR, parent company of HotelNewsNow.com. In July, Boston reported average occupancy of 85.1%—the highest mark in five years.
There are only about 1,700 rooms within walking distance of the BCEC at present, which creates a competitive disadvantage for the city, said James Rooney, executive director at the Massachusetts Convention Center Authority.
“Districts around the major convention cities in this country are heavily populated,” he said. “Having 8,000 rooms within walking distance is average.”
The legislation that enabled creation of the BCEC in 1997 outlined a defined geographic zone in which construction and hotel development was prohibited, Rooney said.
“The reason for (the legislation) is because it’s close to a residential area, and there was a level of fear and apprehension of that area being developed.” he said. “We were allowed to build one hotel, the (Westin Boston Waterfront).”
Earlier this month, Massachusetts lawmakers lifted the ban and are allowing up to seven new hotels with no more than 2,700 rooms to be contracted within the area.
“Hopefully by the end of the year, we’ll have (request for proposals) and development partners to build two smaller limited service hotels with about 250 rooms,” Rooney said. “Our second goal is to within the next year issue a RFP of a headquarter hotel of up to 1,200 rooms.”
Rooney added that he’d like to have a brand flag these hotels. He hopes to break ground on the two midsize hotels by the end of 2013.
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David Connor, GM, Westin Boston Waterfront |
The new properties will join, among others, the Westin Boston Waterfront, which has been open for eight years and is the only hotel physically connected to the BCEC. At 793 rooms, the property can fulfill only a fraction of the 5,000 to 7,000 roomnights generated by citywide conventions, said GM David Connor.
When the MCCA issued a RFP for the property in the late 1990s, they wanted it to have 1,120 rooms. But when the downturn came in 2001, they decided to split development into more manageable phases, Rooney said. The MCCA owns a plot of land near the Westin earmarked for the second phase expansion plan.
“They were waiting for the economic conditions to return,” he said. “My hope is that within a year they break ground as well.”
The addition will bring 327 rooms.
Building a bigger market
Adding supply isn’t the only issue facing the city in its quest to attract larger conventions. While it's certainly part of the MCCA’s “Top 5 Campaign,” a long-term initiative launched in November 2009 to make Boston a top 5 destination in the North American convention and meetings industry, the other major goal is the expansion of the BCEC itself.
The city is making strides toward that aim. An ad-hoc government panel in June gave the go-ahead for a $2-billion master plan to expand the eight-year-old convention center.
But questions remain whether that expansion should precede hotel development or vice versa.
“Everyone thinks if you build it, they will come,” Thomas Dolan, managing director of HVS property tax services at the Boston office, said. “But these are hotels that probably won’t be built until 2014 to 2017, just in time for the next downturn.”
Just because the legislation has passed, that does not necessarily mean there will be seven new hotels near the BCEC in the near future, Rooney said.
Jeff Saunders, president and CEO of the Boston-based Saunders Hotel Group, which manages The Lenox and The Back Bay Hotel, doesn’t think developers will be attracted to the opportunity to build near the center unless expansions of the BCEC comes first.
“We certainly don’t need 2,700 hotel rooms unless there are a lot more meetings going on,” he said. “It’s hard for me to understand expanding the convention center to accommodate maybe the top 10% convention that we can’t accommodate.”
For 2012, there are 26 citywide conventions that were scheduled or that have already happened in Boston, according to Rooney. Looking ahead to 2013, there are only 21. But Connor said he’s not alarmed because the smaller John B. Hynes Veterans Memorial Convention Center already has more events schedule for 2014 than ever before.
With 71,644 square feet of meeting space, The Hynes Convention Center, which is located in the Back Bay area of Boston, is largely used for the smaller conventions and trade shows that require about 1,000 to 2,000 rooms, Rooney said. There are approximately 18 more of those smaller conventions scheduled for 2013 in comparison to 2012, he added.
“It makes up for what is lost citywide,” he said. “With Hynes having a good year consuming inventory in the Back Bay, opportunity to use those hotels (to fill demand for BCEC events) doesn’t really exist anymore.”
“Demand is strong, but the problem with Boston right now is as much as our rates have recovered, they’re still recovering at a level that does not justify new construction,” Saunders said.
There are 11 hotel projects in Boston’s total active pipeline as of 31 July, according to data from STR. Only one of those, the 120-room Residence Inn on Congress Street, is under construction.
Dolan said justifying development in the downtown area is not as easy as one might think. “The cost to build in that market versus the ADR you’ll obtain is challenging,” he said.
“We certainly know we’ll never develop as much inventory as Chicago and Las Vegas,” Rooney said. “But we feel like we could compete with those others who are in that position (top 5 markets).”