Hotel Projects Stall as Private Capital Stays on the Sidelines

When it comes to hotel development in Boston, there are a lot of projects, but not a lot of progress. Responding to the city’s position as one of the nation’s leading hotel markets, the Hub was flooded two years ago with a wide variety of hotel proposals, but getting those ventures off the drawing board has proven a daunting task. Along with rising costs for labor and materials, a wary capital market has slowed the arrival of new product city officials were counting on to service existing business, plus that expected to come with the 2003 opening of a 700,000-sf convention center in South Boston.

“It’s a very tight market [for financing] right now,” agrees John Connolly, whose Sawyer Enterprises is proposing a 432-room Loew’s Hotel near Boston’s Chinatown. While the project is considered among the strongest in the pipeline, Connolly says construction has been pushed back to early 2001.

Other Boston inns that have stalled include a 195-room project on Battery Wharf, the 149-room Hotel Kenmore near Fenway Park, and developer W. Kevin Fitzgerald’s proposed hotel just off Boston Common, one slated for the top of a planned 200,000-sf office building. Another hotel permitted near Boston Common has already been abandoned in favor of condominiums.

Connolly traces the difficulties to August 1998, when global economic concerns disrupted Wall Street, especially the commercial mortgage-backed securities market that had been financing substantial hotel activity nationally. While the overseas crisis eventually quieted, public capital has remained on the sidelines. Fears of overbuilding and rising interest rates have been contributing factors, according to Connolly.

With a solid flag in place and an experienced development team, Connolly expresses optimism that his project will ultimately break ground. The firm is, however, revising its design to reduce costs. Originally estimated at $125 million, the price tag has been driven up considerably, Connolly says, and Sawyer is now trying to rein in those overruns. One possibility, he says, is to cut the number of rooms, although he stresses that no final decision has been made.

“We’re looking at everything,” says Connolly. “If there are surprises, we want to know about them earlier rather than later.”

In that regard, Sawyer can sympathize with Starwood Hotels & Resorts, which last year won a spirited competition to develop a so-called headquarters hotel for the convention center. After missing one deadline recently, convention center officials threatened to pull Starwood from the $267 million, 1,120-room project. Last week, a convention center official told the Boston Herald that Starwood is reducing the hotel’s scope, with one possible target a 50,000-sf ballroom.

“They are confronting the same market conditions that everybody else is,” says Connolly.

Calls to Starwood were not returned, but Boston Redevelopment Authority spokeswoman Susan Elsbree says the city is confident the headquarters hotel will move forward. She also maintains that the other projects are viable, insisting that Great Bay Holdings is “back on track” for the Hotel Kenmore development. And even if a few proposals fall by the wayside, Elsbree says the city should still be able to meet its goal of 4,800 new rooms by 2003. “Clearly the push is on to keep these projects moving ahead and to find some others as well,” she says, estimating that Boston needs another 2,000 rooms to meet the target number.