Downtown hotels struggle with growing pains

06:19 PM CST on Monday, February 21, 2005

By Jason Whitely / 11 News

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HOUSTON -- By the looks and sounds of things, downtown Houston is booming with construction and new business. But a closer look reveals another side to the re-development and the economic prognosis may not be healthy for downtown hotels.

KHOU

The downtown Hyatt is in foreclosure.

Behind the bellmen, inside the shiny glass, downtown hotels are reluctant to let the secret out -- business in Houston is not that hot.

"It was kind of a field of dreams so to speak in the hotel business and hotel land -- build it and they will come," said financial analyst Malcolm Browne. "But they put the cart before the horse."

Experts point to the downtown Hyatt as a casualty of a saturated market. In the third quarter of 2000, it had a 79-percent occupancy rate. During the same period last year, it was only 40-percent full.

It was no surprise to analysts last week that lenders foreclosed on the property, though the Hyatt will continue to operate there.

The number of hotel rooms in Houston has doubled in the last five years.

But consulting firm Source Strategies says the supply of rooms is far outpacing the demand.

Source Strategies guesses it's only a matter of time before hotels close or are converted into residential condos. The city is much more optimistic, saying we're only experiencing a bump in the road.

"I think we've got a bump in the road in downtown but across the community it's better and looking a lot better in the future, said Jordy Tollett with the Greater Houston Convention and Visitors Bureau. "So I think it's a short-term problem."

The slowdown in business travel hurt downtown hotels.

The city says business travel is coming back along with conventions. But not fast enough to fill all the rooms. Everyone agrees there are about a thousand too many.

Whether downtown hotels can continue to survive remains to be seen.