The D.C. Government is Inflating the Hotel Market
A couple months ago, we looked at the District's hotel construction pipeline, and found thousands of rooms coming online in the next few years, even as jobs flatline and the rest of the commercial real estate market contracts. The question I should have asked is this: Who's financing all these hotels? Don't they see they're heading into a glut?
Well, Jonathan O'Connell made a really good point late last Friday: Quite a few of them are being subsidized by you and me.
The District put $272 million and land into the convention center hotel, another $198 million plus land into the Southwest Waterfront and $260 million into the CityMarket at O project that will feature the Cambria*. The developers of the next two Marriotts have asked the city for $35 million. Perhaps the hospitality industry will recover sufficiently to support all the new rooms when they open, but some worry the D.C.-financed hotels may just end up cannibalizing one another. The closest competitor for the new Carr hotel, for instance, is the Mandarin Oriental Hotel—financed with $46 million in city funds.
And he doesn't even mention a $46 million tax abatement for the Adams Morgan Edition hotel!
Government entities, of course, aren't set up as well as a private investor to assess market risk. Each of these financing decisions was made years apart and pushed by different politicians who want projects in their own wards. Cumulatively, the end result could be a bunch of high-end hotels that are never full because visitors simply have too many options.
Still, those private investors seem undeterred as well. Another "ultra-luxury" hotel recently announced plans to move forward in Georgetown, as did the folks behind the former 1Hotel at 22nd and M Street NW. So either they're headed into the muck as well, or a hell of a lot more people are going to be visiting D.C. two years from now.
* UPDATE, Thursday, 8:55 a.m. - The D.C. government only put $35 million in tax increment financing and $2.5 million in predevelopment grants into the project, not the full $260 million development cost, as the Post reported.
Photo courtesy of Treviicos.