Downtown’s Hotel Hub: Is Market Too Saturated?

By Ryan McBride, Staff Writer

Sporadic is the word that perhaps best describes the history of hotel construction in Providence, where only seven have been built in the past 100 years. Developers now, however, are betting that the city’s emergence as a hub of higher learning and the arts will attract enough visitors to support a bevy of new hotel developments.

Call it hotel fever.

Carpionato Properties Inc., of Johnston, earlier this month agreed to buy a wedge of downtown property from the city of Providence for $2.8 million, with plans to build an InterContinental Hotel & Resort. The 15- to 20-story building would house 200 upscale rooms and 40 condominiums, said John Kokot, vice president of development at Carpionato.

“Although Providence has some excellent hotels,” Kokot said, “they don’t have enough at the high end of the spectrum, and an InterContinental hotel would fulfill that need.”

The proposed hotel site is a triangle of land bound by Memorial Boulevard, Exchange Street and Steeple Street – only one block away from The Westin Providence, where construction has begun on a second hotel tower, which will include up to 103 condos. The Procaccianti Group, a Cranston-based real estate developer that owns The Westin, plans to add 200 hotel rooms within the 31-story tower at the corner of Francis Street and Sabin Street. (And just to the south, the company’s Holiday Inn Providence is undergoing renovations to become a luxury Hilton hotel with 274 rooms.)

Work is also afoot to remodel the abandoned Masonic Temple, located near the State House and Providence Place mall, into a 270-room Renaissance Hotel & Resort. Behind the project is Denver-based Sage Hospitality Resources, one of the largest hotel holding and development companies in the country.

The Hotel Providence, an 80-room boutique hotel, opened in the Downcity area in January. Located at the corner of Mathewson and Westminster streets, the hotel consists of two remodeled, 19th-centrury buildings.

Experts say the fusion of several favorable conditions have fueled this recent surge of hotel development.

“Notwithstanding the increase in interest rates, there is still a significant amount of capital available for real estate development, particularly of hotels,” said Michael McMahon, executive director of the R.I. Economic Development Corporation.

McMahon indicated that years of political corruption in the city had devalued its real estate, yet a recent era of clean government, ushered in by Providence Mayor David N. Cicilline and Gov. Donald L. Carcieri, has attracted more investment. This comes as the city’s reputation as a haven for the arts and fine dining has garnered national acclaim.

Also drawing developers to Providence are the state’s tax credits for rehabilitating historic buildings, McMahon said. Both The Hotel Providence and Renaissance hotel at the Masonic Temple have benefited from the tax breaks.

Hotel vacancies are sometimes hard to find in Providence.

The Providence Warwick Convention & Visitors Bureau reports that the city’s hotel occupancy rate was 73 percent in 2004, among the highest in the country. The high occupancy rate tells developers and commerce officials that an unmet demand for hotel rooms exists in the city.

The above hotel projects combine for 750 new hotel rooms, increasing Providence’s current supply by about 50 percent. Whether this jump in supply will help or hamper the city’s hotel industry is a question receiving different answers from developers and tourism officials.

“What I see happening here in Providence makes me very nervous, very nervous for the present and new hotels to maintain occupancies that will make them profitable,” said Arthur S. Robbins, president of Robbins Properties Inc., a Providence firm that was involved in developing the Courtyard by Marriott Downtown in the late 1990s and the Providence Marriott Downtown in the mid 1970s.

Scott A. Barger, director of sales and marketing at the latter Marriott, said the 351-room hotel’s management has devised an undisclosed business plan in anticipation of the new hotels. “For any hotel in a market, a double-digit increase in supply is daunting,” said Barger, noting that his hotel has had an average occupancy rate of about 75 percent.

Those concerned about the spike in hotel room supply believe the success of new and existing hotels in the market will depend heavily on more conventions coming to the city.

James P. McCarvill, executive director of the R.I. Convention Center Authority, said the new hotels will help the quasi-state agency attract more and larger conferences to the state’s convention center. The authority sold The Westin to The Procaccianti Group earlier this year for $95.5 million, requiring as part of the sales agreement that the firm build 200 additional rooms so it could book larger conventions.

McCarvill said that during certain times of year such as graduation season in May, the authority is unable to book the convention center because of the lack of vacancies at the city’s hotels.

Providence is not only host to unprecedented hotel growth, but all the new hotels are considered upscale by most standards.

“No one has done a middle- or lower-price-range hotel in the city,” noted Thomas E. Deller, director of planning and development for the city of Providence.

In fact, city officials have urged developers such as Procacciati to consider other uses than hotels for future development. Still, Procaccianti earlier this month closed on the $2.3 million purchase of The Fogarty Building from the city, and is considering a number of development options for the Fountain Street site – including a hotel. Procaccianti has until January to present a development proposal to the Providence Redevelopment Authority.

Procaccianti also plans to buy the former public safety building across the street at LaSalle Square, a site other developers had targeted for a hotel.

Some believe the number of high-end hotels coming into the market is moderate. “I think we have a very good balance,” said McMahon.

Hotel room stays cost an average of $140 per night in Providence last year, according to the visitors bureau.

Room rates range from $129 to $189 per night at the Radisson Hotel Providence Harbor (built in 1985) in the city’s Fox Point area. And the Hotel Dulce Villa in Federal Hill offers rooms for less than $200.

Yet the majority of available rooms at downtown hotels such as The Westin, the Providence Biltmore Hotel, The Holiday Inn, and both Marriotts are priced between $200 and $300. The Hotel Providence had available rooms from $339 to $799 per night, according to a recent survey by Providence Business News.

Carpionato’s Kokot – who said the company’s proposed InterContinental would feature upscale accommodations – even acknowledged that the city’s existing hotels have proven that demand exists for moderately priced rooms.

“Given that they have done extremely well,” Kokot said, “that would suggest that a hotel in that middle range certainly has an audience in Providence.”

Robbins, a developer of hotels in Rhode Island for 45 years, remained wary of the sheer number of hotel rooms entering the market. “Good luck to the developers because it’s going to be a battle,” he said. “The room rates are going to suffer and the occupancy is going to suffer.

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