Sep. 7--Hilton Hotels Corp.'s newest inn will open in Chicago Friday with all the traditional hoopla: an appearance by a Fortune 500 CEO, a ribbon cutting and a sumptuous brunch for 400 notables. 

But the celebration featuring Stephen Bollenbach, president and chief executive officer of Beverly Hills, Calif.-based Hilton, may be premature, because the opening of the company's Embassy Suites Hotel in River East could not have come at a worse time. 

Hotel occupancy rates nationally and in Chicago have been falling steadily since the first of the year, when the weakening economy began sapping business travel. Moreover, many hoteliers fear that occupancy rates will slide even more quickly as summer vacation season ends and the traditionally slow autumn season begins. 

Marriott International, which operates guest accommodations ranging from less expensive Fairfield Inns to full-service Marriott and Renaissance Hotels, has become so concerned that on Thursday the chain chopped fall and winter weekend rates as low as $49. 

Through July, the average occupancy rate in Chicago has tumbled to 67.8 percent this year from 73.6 percent through the first seven months of 2000, according to the Chicago Convention and Tourism Bureau. Nationally, occupancy rates at four major hotel chains have fallen from about 73 percent to 66 percent over the same period, according to figures provided by the four chains -- Hilton, Marriott, Starwood International and Six Continents Hotels. 

"That's a hotel's profit margin," said Howard Adler, a professor of restaurant, hotel and institutional management at Purdue University. 

Even more hurtful to the hotel industry is the drop in the average room rate that hoteliers have been able to charge, Adler said. 

The year-over-year increases that the industry had been able to charge for the past eight years came to a halt in April when the average rate charged for a room in Chicago dropped an unexpected $4 from the same month a year earlier. Similar year-over-year drops were recorded in May and June, according to statistics compiled by the Chicago Convention and Tourism Bureau. 

As a result, the new Embassy Suites, twice the size of a typical Embassy, joins what has become a fiercely competitive downtown Chicago hotel market. In the past 18 months, four downtown hotels with over 1,000 rooms have opened. 

Since 1992 when the last Chicago hotel slump occurred, the city's hospitality industry has increased the number of downtown rooms by 12 percent to 28,316. Including the suburbs, there now are more than 80,000 hotel rooms throughout the region, 25 percent more than in 1992. 

But the downtown hotel building boom is drawing to a close. Earlier this year, the developers of Block 37 dropped plans to include a Marriott Suites hotel in their proposal for the long-vacant lot in the heart of the Loop. 

The controversial and ill-fated Block 37 provides little basis for drawing broad conclusions about the hotel market. The Daley Administration later killed the proposal entirely and is beginning to look for another developer. 

Nonetheless, several high-profile projects have not started at least in part because of the difficulty obtaining hotel construction financing. 

For example, St. Louis-based HBE Corp. has yet to start construction on a 1,500-room Adam's Mark hotel across the street from the new Embassy Suites, even though it acquired the site in early 2000. 

And Chicago-based Mark IV Realty Group Inc. has been working for nearly a year to obtain financing to convert the landmark Carbide & Carbon Building, 230 N. Michigan Ave., into a trendy Hard Rock hotel. 

As a result, only one hotel project is now under construction in the city's central business district. The upscale Sofitel on the northwest corner of Chestnut Street and Wabash Avenue is scheduled to be completed next summer. 

While vacation travelers helped fill up hotel rooms in the early summer, many businesses slashed travel expenses -- and hotel stays for their executives -- months ago. Embassy Suites, which caters to business travelers, has not been immune, said Mark Snyder, senior vice president of Embassy Suites Brand Management, noting the hotel brand's occupancy rates are down 3 percent so far this year. 

"Downtown Chicago hotels typically have a business orientation and we have seen a significant cutback in corporate travel," said Haemoon Oh, a professor in the Iowa State University hotel management department. 

Oh said that the new Embassy Suites and other hotels that opened earlier this year are symptomatic of an "inability to plan long term" within the hotel industry. 

"We saw a lot of demand after the Gulf War ( in 1991) and hotels started building," Oh said. "But they didn't analyze the market and they didn't pay attention to their other competitors. By the time they open, the hotel demand has slowed." 

Oh noted that moderately priced hotels, such as Courtyard by Marriott or Fairfield Inn, are not being hurt as badly by the economy's downturn as are the upscale full-service hotels. "Many businesses now do not want their corporate travelers staying in higher class hotels," he said. 

Snyder of Embassy Suites, however, predicts that his brand's new River East hotel will be able to hold its own in the newly difficult climate. "Even though the market is going a little south, there are thousands of business travelers in downtown Chicago every night," he said "It's our competitors that have to beware because Embassy will take a greater share of their customers." 

While the 455-room Embassy is not attempting to portray itself as a five-star hotel, it is still plush. Anchoring the $1 billion River East complex, which is being developed by MCL Companies, the 17-story hotel features a floor-to-roof atrium lobby. Slate floors and cherry veneers highlight the Art Deco-style lobby. Guests driving to the hotel will be descend into a 13-foot underground drive-thru where parking valets await. Each suite contains a bedroom with a separate living area and a mini-kitchen. 

As in the early 1990s, when the Sheraton Chicago Hotel & Towers and the Stouffer Hotel (now the Renaissance Hotel) opened as the hotel market was dropping sharply, most expect the downturn to be temporary. 

It took the Chicago hotel industry three years to recover from the 1991-92 downturn. Occupancy rates didn't return to 70 percent until 1995. 

"If the investors can tough it out, things will get better eventually," said Mike Sciarini, a professor in the Michigan State University school of hospitality business. 

Tribune staff reporter Thomas A. Corfman contributed to this report. 

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