Boston is emerging as a hot spot for the luxury hotel industry.
And while there is certainly much to be proud of with our glittering array of four-and five-star hotels, the timing could not be worse.
The Hub has welcomed two new luxury brands to town over the past year, and more are on the way.
It’s an unprecedented infusion of hundreds of millions of dollars into an array of posh new hotels, from the $300 million Mandarin Oriental, which just celebrated its first anniversary, to the just-opened $234 million W Boston, to the new Ames near Government Center.
But the big investment push – in at least one case with a major assist from City Hall – comes amid signs that the trend toward ever-more exclusive and expensive flags may be in for a luxury condo-style correction.
Widespread Problem
Deluxe hotels across the country are battling foreclosure, ranging from a new Westin at Chicago’s O’Hare Airport to the W Scottsdale, which recently reached a deal to avert a takeover by its lender.
And this trend is poised to intensify dramatically in the first half of 2010, as a range of newly-built upscale hotels, both in Boston and around the country, struggle to meet revenue projections set during the boom.
The Boston/Cambridge hotel market now has a total of 26 hotels with coveted four-or five-diamond status, more than even Las Vegas, Washington and San Francisco.
“There is a day of reckoning coming,’’ said Thomas Engel, a top, Boston-based hotel industry consultant. “I think you are going to generally see foreclosures, and bankruptcy filings across the board, particularly in luxury hotels.’’
The Hub’s overstocked luxury hotel market has yet to experience as dramatic a shakeout as elsewhere in the country.
Still, the recent opening of the W Boston should not necessarily inspire a large amount of confidence, either.
In fact, the opening came close to not happening at all, until City Hall came through with the pledge of a $10.5 million loan.
That enabled the project’s developer, Sawyer Enterprises, to build out the hotel’s restaurant, without which the deluxe W could not have opened.
But the hotel is still not complete, with a spa and showcase lounge not expected to open until the spring.
Still, a bigger problem for the W Boston and for the Mandarin Oriental may be hitting lofty room rate targets that appear increasingly out of synch with the tenor of the times.
The W Boston has talked of an average daily rate of $300 per night.
And it has attempted to cast itself as a cut above your typical luxury hotel, labeling itself a “lifestyles hotel.’’
Good thing, since other luxury hotels in Boston are charging room rates in the $250 a night range during peak nights.
And the Mandarin has set its rates even higher, with a base rate of more than $400. In fact, the deluxe hotel’s idea of a special is a holiday shopping package at $419 a night.
While individual hotels don’t report occupancy rates and rents, the luxury class has been the hardest hit of any category in the business.
Revenue per room is down 27 percent and daily rates off more than 13 percent in the luxury hotel sector, notes Engel.
“I would be in disbelief if that hotel was able to achieve its pro forma average daily rate,’’ Engel noted recently of the new W Boston. “The world has just so dramatically turned.’’
