Nervous markets don't deter hotel bid
Sunday, November 04, 2007
BY DAN MILLER
Of The Patriot-News
Hersha Development Corp. committed to a new hotel in downtown Harrisburg last week, despite signs that tight credit is slowing down such development.
Hersha entered a joint venture with WCI Partners to develop the proposed 13-story, 138-room Starwood Aloft hotel at Second and State streets. The project, which was first announced by WCI last year, would be the first hotel built in the city since 1990.
In September, PricewaterhouseCoopers predicted 3,000 fewer hotel rooms being built in 2008 than first forecast, because of lenders postponing or canceling financing. The firm also expects a nearly 1 percent drop in consumer demand for rooms in 2008 compared to initial projections.
Mayur Patel, general counsel for the Hersha Group family of companies, which includes Hersha Development Corp., said the study is no cause for concern.
"Most of the decline you see is among properties being built along highways and in suburban settings, where you put up a hotel and the next day there are two or three guys getting approvals and the zoning to put up a hotel right next to you," Patel said.
Patel said the Starwood Aloft is in a sector of the lodging industry that is growing -- "boutique" hotels in the heart of cities.
"If you look at city centers like Manhattan and Philadelphia, and to a lesser extent places like Harrisburg, you are seeing an increase in rooms," Patel said.
J. Alex Hartzler, president of WCI Partners, unveiled his hotel plan in September 2006, which with a year of hindsight looked like a much more stable economy. But Hartzler sees no reason for changing plans for the project, which would be the first new downtown hotel since the 341-room Hilton Harrisburg opened on Second Street in 1990.
The downtown also has Crowne Plaza Hotel on Second Street, which opened in 1965. The 261-room Crowne Plaza finished a $10.5 million renovation in 2000.
"There's increasing demand for a downtown location where business travelers want to stay, somewhere where they can take care of multiple things at a certain time. That's always been our premise," Hartzler said. "If you stay here, you can walk to your appointment at the capital, you can frequent the restaurants, you can do all your business without having need of a car."
Patel said the downtown can use another hotel.
Joseph B. Massaro, Hilton's general manager, has said he has no doubt that downtown can support a third hotel. Massaro said that the average occupancy rate for hotels in Harrisburg so far this year is 65 percent, according to Smith Travel Research. Massaro would not disclose a current occupancy average for the Hilton.
Hersha's private hotel management company operates 54 hotels, including many in urban centers from Boston to Washington, D.C. Hersha runs 10 hotels in New York City.
Hersha started in Harrisburg in 1984 when founder Hasu P. Shah -- Hersha is named for Shah's wife -- bought the Riverfront Hotel in Shipoke, which is closer to Interstate 83 than downtown. Hersha's corporate headquarters, which was recently expanded and renovated, is on North Front Street in Harrisburg.
Patel said Hartzler is giving Shah the chance to do something he has always sought to do, which is to develop a hotel in Harrisburg from the ground up.
Hartzler made his fortune as one of three men who bought and grew an Internet company called Webclients .net before selling it for $141 million in 2005 to California-based ValueClick.
Through WCI Partners, Hartzler has plowed much of his profit into redeveloping houses in Harrisburg, particularly in midtown.
Hartzler said Hersha's efforts to reinvest in Harrisburg meant that they were a "kindred spirit." But Hartzler's courting of Hersha is more than a feel-good story about watering one's corporate roots.
For instance, Hartzler said financing for his proposed $10 million hotel isn't yet secured, but that Hersha's involvement makes that issue "one of the next stages."
"One of the advantages of bringing in an operating partner like Hersha is that they have been down this road many times," Hartzler said. "They have contacts with the leading lenders in the industry throughout the U.S.
"We're in a far better position with Hersha than we would be on our own," Hartzler added.
Patel is confident the project will get all the money it needs, even in today's nervous markets.
"If there's a tightening of credit, you figure the most experienced and most savvy builders are going to get what's left of the available funds," Patel said. "We wouldn't have gone this far if we were not 99 percent sure that we're going to get not only financing, but great financing."
Patel said the hotel will rely primarily on private financing. The partnership will be looking into any tax-incentive or tax-abatement programs that the government might provide.
The Hilton cost nearly $40 million. The city got a $7.5 million grant from the federal government to help build the hotel.
The 100,000-square-foot Starwood Aloft will have retail space on the street level, and a 140-seat restaurant. Guests can park in the South Street garage now being built behind the hotel.
Hartzler expects a 2008 hotel construction start and a 2009 opening.
DAN MILLER: 255-8440 or
danmiller@patriot-news.com
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