The Omni Parker Hotel, along with several other Boston hotels, advertises its rates on www.hotels.com, the hospitality industry’s alternative to discount travel sites such as Priceline and Travelocity.

Plagued by a drop in business and tourism travel dating back to the Sept. 11, 2001, terrorist attacks – a problem exacerbated by the more recent SARS scare, war and a still-slumping economy – hotels are struggling to recover revenue. The names of more and more hotels in the Greater Boston area are landing on watch-lists as debt servicers, bond holders and potential buyers pay closer attention to who can, and cannot, pay the mortgage.

“There are quite a few [hotels] in trouble that are based in the Boston area. We’re tracking several,” said Jim O’Connell, principal of Boston-based O’Connell Hospitality Group. “Route 128 and [Interstate] 495 properties are suffering. They haven’t reached the bottom and they were hoping for a good summer, but it doesn’t appear that corporate travel is coming back yet … companies are being more aggressive in taking their property back.”

The prospect of a prosperous summer season kept hotel owners and lenders optimistic at the beginning of the year, but as profits continue on a downward trend, debt servicers are becoming more aggressive in their collection activity. O’Connell, who expects a sharp rise in foreclosures through 2004, said that many debt servicers are coming to the conclusion that slowing the collection process by allowing owners to stop accruing reserves to pay off debt increases the risk of ending up with a deteriorated property when foreclosure eventually does come. No hotels in the Greater Boston area have, as yet, actually gone into foreclosure, he said.

Hotels throughout the country are landing on finance watch-lists as daily room rates continue to slip and hotels see drop-offs in net operating income, sometimes by as much as 90 percent.

“Boston, New York, San Francisco – those markets are unable to recover average daily rates. It’s become a buyer’s market,” said Thomas Engel, president of T.R. Engel Group in Boston. “The result is the plummeting of hotel profitability.”

The Hospitality Research Group, a division of Atlanta-based PKF Consulting, found in a recent study that the number of hotels that did not earn enough income to pay for interest expenses increased significantly between 2001 and 2002. In 2001, 15.9 percent of hotels – out of 3,900 financial statements studied – were deficient. That number rose to an estimated 19.8 percent in 2002.

Jack Corgel, managing director of the Hospitality Research Group, said that while some hotels are having problems meeting their financial obligations, not all are delinquent.

“What we are concluding is that there’s a natural selection process going on,” Corgel said. “There are some that are cash-flow delinquent but they seem to be the older ones in poor locations.”

A Troubled Past

The hotel industry’s problems began in early 2001 when a depressed economy began to slow corporate business travel, one of the main sources of business for hotels on the East and West coasts. Layoffs ensued. The New York and Washington, D.C., terrorist attacks later that year and, more recently, war in Afghanistan and Iraq and the SARS epidemic have compounded the problem. Locally, the dot-com crash also has figured into the mounting difficulties. In Boston, hotel success was built upon high-tech business conferences, the financial services industry and tourism, but as those markets decreased – some by as much as 50 percent – hotels shifted focus. Boston tourism depended on what the Massachusetts Lodging Association calls the “fly market,” so when people stopped coming in through Logan International Airport, campaigns quickly switched to the “drive market,” a group of travelers that typically stays at hotels for shorter amounts of time.

Another factor continues to chip away at hotel profitability: discount Internet travel companies such as Priceline and Travelocity.

“It’s like water dripping on a rock,” said Stanley Buchin, associate professor at Boston University’s School of Hospitality Administration. “It started off slowly three or four years ago and picked up speed.” Online travel purchases increased by 64 percent between 1999 and 2000 alone.

Buchin said that some hotels provide 40 percent discounts to online sellers. But, he said, people can’t blame the online companies for it – the hotel companies, with high vacancy rates, realize they’re better off selling blocks of rooms at lower prices than having rooms stay empty. The results can be frustrating for consumers, too. One visitor may be paying $170 per night for a room while the person next door may be paying $70 for an identical suite.

Much like the problem encountered by airlines, the pressure on hotel owners to meet discounted prices has a tendency to mount.

“There’s a vicious cycle for hotel developers,” Engel said.

But discount Internet sites don’t hold the exclusive online market. Chains like the Marriott and Hyatt have their own booking sites, while dozens of others banned together to develop their own Web site, www.hotels.com, a site that guarantees the “best prices.”

Advocates for the Massachusetts Lodging Association say that the hotel and tourism industries are bracing themselves for another blow this year as the governor and state Legislature discuss budget reductions for the Massachusetts Office of Travel and Tourism. Any reduction in state marketing will have a devastating affect on the hotel industry, said Art Canter, executive director of the association.

“What’s happening here is that we have competing states [that] are spending money. The average reduction in tourism spending by each state is 8 percent. Here in Massachusetts it’s a 40 percent drop,” he said. “That means we’ll have to compete with Maine, New Hampshire and Pennsylvania. It’s going to have a significant impact.”

While the Lodging Association stakes the industry’s future on state funding, others look toward projections of a recovering economy. Engel, on the other hand, says that one basic ray of hope lies in the fact that the construction of new hotels is down markedly over the past two years.

“If the number of new rooms built has shrunk to a trickle, with any [ecomomic] recovery the bounce-back [in the hotel industry] should be fairly immediate,” he said.

But regardless of the depressed economy, war, SARS and terror attacks, hotels are still making a profit, although that margin is shrinking. In 2000, the industry made $23 billion; one year later it made $16.7 billion, Buchin said.

Industry watchers project a turnaround in mid-2004, but until then they expect a shaky market.

“If there is a silver lining, it’s one for consumer access to less costly hotel rooms,” Engel said.