Credit crisis stalls hotels

Downtown Raleigh needs more hotels to attract conventions, but pricey terms have put construction on hold

Six months before the opening of Raleigh's $221 million convention center, the city's ability to attract bigger events -- and more free-spending convention-goers -- is being threatened by the stalled construction of hundreds of downtown hotel rooms.

Of 850 rooms on the drawing boards, about 500 have been delayed as lenders have raised borrowing costs and have asked developers to pay more money up front.

"The capital markets have just been crushed," said Winston Hospitality President Bob Winston, who iced plans for a 25-story tower with 200 hotel rooms and 200 condos at Hillsborough and Harrington streets. "It's a deep freeze."

With expected hotels being pushed back, some event organizers are delaying plans to book a Raleigh convention. Others who are already committed to Raleigh are hoping their event registrations won't outgrow a limited number of rooms. One convention's attendees will have to be bused downtown from suburban hotels.

"The hotels are going to keep us from reaching our full potential," said Roger Krupa, the convention center's director. "We need more hotel inventory."

Raleigh will have about 950 hotel rooms near the convention center when the 400-room Raleigh Marriott City Center on Fayetteville Street opens this summer. That's enough for conventions with up to 1,200 attendees, but not enough to support the convention center's full capacity. The center will be able to accommodate conventions of 5,000 people.

To lure even mid-size trade shows and expos, Raleigh will need 600 more hotel rooms within walking distance of the convention center. Developers are raring to build more hotels in a downtown market where demand for rooms is at an eight-year high. The question now is: When will the lending environment let them?

A year ago, lenders willingly financed 90 percent of commercial projects. Many were emboldened to take the risk on hotels including condominiums, as low mortgage rates made it easier for people to buy homes.

Now, wary of sluggish home sales and decreasing travel nationwide, financiers are asking developers to front almost half the cash for such projects -- even in relatively healthy markets.

The credit crunch has delayed at least three downtown hotel projects in recent months. Perhaps the most damaging delay for the city's convention recruiting efforts was at The Lafayette, a 22-story condo-hotel project planned on Lenoir Street across from the convention center. The convention center's Web site, under its "event planning" section, still says the hotel will open next year. But the hotel is now projected to open in May 2010 at the earliest.

Thinking smaller

Recruiters insist that the center will still be a powerful tool for economic development, but it won't reach its full impact until the supply of hotel rooms matches its full meeting capacity. Meanwhile, recruiters are focusing on groups whose needs fit the available rooms.

"If we're going after bigger groups, not having many hotels is going to make it an uphill battle," said Loren Gold, executive vice president of the Greater Raleigh Convention and Visitors Bureau. "It's just a matter of being very strategic in who you're going after."

So far, the new center has been a popular draw: More than 70 events have already been booked. But if conventions get more attendees than expected, things could get tight -- especially with growing demand from business travelers and tourists. Even though the city has been without a convention center since the old facility was demolished in 2004, downtown hotel occupancy has climbed.