The $100 million Liberty Hotel is scheduled to open later this year in Boston. A portion of the hotel is the former Charles Street Jail, where the Boston Strangler served time.
There’s something filling skylines across the Bay State: hotels.
“We see Greater Boston’s hotel market as strong and improving,” said John A. Fox, senior vice president at PKF Consulting, a New York-based hospitality services company with offices nationwide. “Boston’s economy is in the midst of steady, measured growth and that’s good news for the hotel industry up there.”
Last year, Massachusetts saw a whopping 165 percent increase in the number of hotel rooms, to 2,278, up from 859 in 2005, according to Smith Travel Research, a Tennessee-based company that tracks the lodging industry. Boston saw the opening of a pair of hotels with the InterContinental on Atlantic Avenue and the Westin at the Boston Convention & Exhibition Center.
Sound industry fundamentals continued to drive hotel activity last year. Not only did hotel openings increase thanks to an avalanche of money from private equity funds, but the newest hotels are offering luxury services such as a business centers, 24-hour fitness facilities and room amenities including leather chairs, same-day laundry/valet, high-speed Internet, down comforters, plush robes, custom bath products and in-room spa services.
Hotels nationwide enjoyed a dramatic rise in construction during the late 1990s because tourism was booming, businesses held more conventions and the economy was robust. In 1999, Massachusetts saw construction of 3,393 rooms, a record-setting number for the state, according to Smith Travel data.
But 9/11 put the brakes on planned projects. Since the terrorist attacks, the number of new rooms dwindled to 5,134 from 2002 through 2005. From 1998 through 2001, the Bay State had nearly 10,000 rooms built.
“We had some slowdown in late 2000 because of the dot-com bust, but by the summer of 2001 there was an expectation that things were going to recover. Then 9/11 hit and things came to a halt and didn’t recover for several years,” Fox said. “By 2003, hotel construction started up again and we’re seeing those rooms coming online now.”
Hotel room revenues in Massachusetts climbed during the five-year period from 1995 through 2000, the Smith Travel data said. In 1995, revenues were $1.3 billion and by 2000 the number had jumped to $2.2 billion. Following 9/11, income dropped to $1.8 billion in 2002 and slipped again in 2003 to $1.7 billion.
Since then, however, revenues have risen each year, hitting $2.2 billion in 2006. That number represents an 11 percent increase over 2005 revenues. During the same period, the average room rate in Boston reached $194.
Boston continues to build hotels. There are four luxury hotels under construction that will add more than 1,000 rooms to the city’s hotel tally, according to the Boston Redevelopment Authority.
The former Charles Street Jail adjacent to Massachusetts General Hospital is expected to open as a hotel later this year. Renamed The Liberty Hotel, the restored 1851 jailhouse at Leverett Circle will offer 300 luxury rooms starting at $250 per night. The jail was home to several notorious criminals. Albert DeSalvo, the alleged serial killer who terrorized Beacon Hill as the Boston Strangler in the 1960s, was a guest, and so were Nicola Sacco and Bartolomeo Vanzetti, who served time before their execution for killing two people at a Braintree shoe factory in 1920.
“The Liberty’s opening comes on the heels of the worst downturn in the history of Boston hotels,” said Rick Swig, president of RSBA & Assoc., a San Francisco-based hospitality consultant. “The industry suffered after 9/11 but Boston and San Francisco got hammered the worst because the high-tech and dot-com failures hit both coasts like the perfect storm.”
A Mandarin Oriental hotel is scheduled to open in 2008 next to Lord & Taylor on Boylston Street. The $230 million project will add 168 guestrooms and suites and the property will be part of a mixed-use complex with first-floor retail and condominiums on the upper floors.
The Regent Boston Hotel and Residences at Battery Wharf is under construction at the site of the former Bay State Lobster market along Commercial Street. The hotel and luxury condos were put on hold following the terrorist attacks in 2001, but are scheduled to open in late 2007. The 150-room, five-star hotel also will feature 103 luxury condominiums, an 18,000-square-foot spa, an upscale restaurant and a 5,000-square-foot café.
In addition, the Renaissance Boston Waterfront Hotel, an upscale, full-service hotel brand of Marriott International Inc., is slated to open this fall. The $145 million project in the city’s Seaport District will feature 471 guestrooms, more than 20,700 square feet of meeting space, including a 10,700-square-foot ballroom and a junior ballroom, a restaurant, lounge and banquet facilities.
There are nearly 1,800 hotel rooms in the pipeline, according to the BRA, with seven projects expected to be completed between 2008 and 2010.
Last year, the Intercontinental Hotels & Resorts partnered with Extell Boston Harbor, a New York-based real estate investment company, to develop the $310 million waterfront project that includes a luxury hotel and condominiums. The Boston-based architectural firm of Elkus/Manfredi designed the mirrored building façade and landmark features. With 424 luxurious guestrooms and suites featuring waterfront and cityscape views, the hotel offers five-star services and amenities.
Also in 2006, the 790-room Westin Hotel opened with a connection to the Boston Convention & Exhibition Center. The $200 million hotel features 32,000 square feet of meeting space including a 15,000-square-foot ballroom, a 125-seat signature restaurant, an 80-seat lobby/lounge, pool and health club.
Nationwide, the hotel construction pipeline is full of planned and proposed projects. However, the high cost of construction has kept most of these projects from breaking ground.
“If construction costs continue to grow at rates exceeding inflation and property value increases, it is reasonable to assume that existing hotels will be virtual money-printing machines over the next few years,” said John B. Corgel senior advisor to PKF Hospitality Research. “Investors should have great difficulty matching the dividend return on hotels compared to other property types. On the other hand, if construction costs decline by 5 to 10 percent, the potential exists for the supply growth to exceed demand growth during the next two years.”
Fox is bullish on Boston’s hotel future with one or two cautions. “We are certainly not as robust as the mania we saw in the late 90s, but I think we’ve seen a steady run up in business in Boston,” Fox said. “I don’t see anything on the horizon that would slow things barring another major international incident or the collapse of the Big Dig.”
