Although the supply of new lodging properties is down nationally over the past two years, additional projects are coming on line or are under construction locally. This 186-room Courtyard by Marriott opened last summer at Unicorn Park in Woburn.

As a native New Englander, Jeffrey G. Saunders knows that even a harsh winter such as 2003 has its limits, with the record snowfall ultimately no match against warming breezes and April sunshine. As a veteran hotelier, however, Saunders can only forecast indefinite iciness for the region’s already frigid hospitality industry.

“Business has been terrible and there’s no glimmer of hope in sight,” said Saunders, who recently participated on a panel discussion focused on the Hub hotel market. The program at the Newton Marriott in Newton was sponsored by the Massachusetts chapter of the National Association of Industrial and Office Properties and moderated by Rachel G. Roginsky of Pinnacle Advisory Group.

Saunders, whose company owns two Back Bay hotels and is converting the Hub’s former police headquarters into a 220-room operation, said Greater Boston’s hotel market has now been in the doldrums for two full years. The high-tech bust and eroding economy began impacting the sector in April 2001, he said, preceding the Sept. 11 terrorist attacks five months later that subsequently have cratered activity for a prolonged stretch.

Not only is 2003 seen as a poor year for conventions in Boston, Saunders said corporate volume is down substantially and tourism has also been doused by war jitters, tighter consumer purse strings and perceived travel hassles from increased security. Although plunging room rates have yielded some value-conscious pleasure traffic, Saunders said it has been too limited to make a true dent in the slipping demand levels.

“It may be a recession for the economy, but it’s a depression for hotels,” said Saunders, adding that the downturn is forcing owners to bargain on pricing. “Rate integrity has been blown to bits,” Saunders said. “There’s no such thing as a regular rack rate anymore.”

One harsh outcome has been a reduction in staff, with Saunders estimating that thousands of hospitality positions have fallen victim to the slump. “Hotels just don’t have the demand for those jobs,” he said. “And you can only cut expenses so much.”

Suburban hotels have been the worst hit by the downturn, particularly those positioned to serve the corporate market. Limited service properties were deemed overbuilt in the previous boom, and have been forced to dramatically slash rates and push aggressive promotional packages. Aided by its proximity within a few miles to Logan International Airport, the 208-room Comfort Inn & Suites in Revere that Saunders Hotel Group opened two years ago has held its own, Saunders said.

The developer also remains upbeat over the ultimate success of the police station inn, which will fly the inaugural Hub flag of Ireland-based Jurys Doyle Group. Even in the face of a deteriorating climate, Saunders broke ground on the $55 million project last summer, confident that downtown Boston will recover by the time the hotel opens in the spring of 2004.

In the meantime, Saunders said there could be further pain for the industry. “People are already losing their jobs, and I wouldn’t be surprised to see owners start to lose their hotels,” he said.

Resilient Ownership

Hotel broker David McElroy of Insignia/Hotel Partners agreed that conditions are harsh in Greater Boston, reporting that revenue per available room (RevPar) fell by 7 percent in 2002 after a losing year in 2001.”The spigot can shut off pretty quickly,” McElroy said.

Although the supply of new lodging properties is down by more than 36 percent nationally over the past two years, additional supply is coming on line or is under construction locally. Besides the Saunders venture, Intercontinental Hotels opened its Nine Zero hotel on Tremont Street in Boston last year, developer David Leatherwood is building a 112-room hotel in the city’s North Station district and McElroy is working with a British property owner who is converting an aging Back Bay apartment building into a boutique hotel. In the suburbs, a 186-room Courtyard by Marriott opened last summer at Unicorn Park in Woburn.

Overall, McElroy said Greater Boston has held together relatively well, with occupancy levels inside Route 128 in the high 60 percent range. Even with the industry’s troubles, McElroy added, there remains more capital chasing hotels than there are opportunities available. The reason, he said, is that owners are far stronger than they were in the brutal recession of the early 1990s, when dozens of overleveraged assets were foreclosed on throughout the region.

The outcome of that debacle were higher equity requirements and stricter underwriting, McElroy explained, solidifying the industry’s underpinnings enough to weather a rough period, and also giving owners a financial reason to stick around as well. “The foreclosure rate is a fraction of what it was in the last down cycle,” McElroy said. As a result, “there’s no distressed property out there,” he said.

The resiliency of the ownership base has been a bit of a surprise, said McElroy, who had predicted 2002 would be an active selling season. It did not come to pass, he said, partly due to the refinancing option available to owners, and the aforementioned underwriting. And owners inclined to cash out would rather wait until the market improves, McElroy said, given that values are typically pegged to revenues of the previous 12 months. Buyers, on the other hand, are not inclined to overpay, extending the bid/ask gap of 2002 through the first quarter of 2003.

According to a review by GMAC Institutional Advisors, Boston’s hotel market is performing in the middle nationally, with the report anticipating a “modest easing of financial pressure” in the coming year. While better than such cities as Denver, Cleveland, Phoenix, Atlanta and Seattle, the Hub ranked behind 16 major metropolitan markets that are expected to see a “substantial easing of financial pressure.” Philadelphia and Washington, D.C., were deemed recovered from Sept. 11, while other areas in the top 10 best included Las Vegas; Nashville, Tenn.; Sacramento, Calif.; Orange County, Calif.; San Diego; and Fort Lauderdale, Fla.