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A Pause in Atlanta Hotel Construction; Some
 Announced Projects Rethinking Strategy

By Leon Stafford, The Atlanta Journal-ConstitutionMcClatchy-Tribune Regional News

Feb. 29, 2008 - Atlanta's hotel industry, which experienced a boon in occupancy and construction over the past few years, is seeing a slowdown.

Industry experts, who six months ago were forecasting a strong year, are slightly less upbeat. They say the number of booked conventions is still good, but worry that business and tourist travel may not be as robust as in the past because of the downturn in the economy.

And most say that until the industry gets a clearer picture of whether the country is headed toward a prolonged recession, new hotels probably won't break ground for a while.

"The level of economic uncertainty is causing a lot of people to rethink their strategy and where they are in the marketplace," said Mark Woodworth, executive vice president of PKF Consulting, an Atlanta firm that tracks the health of the hotel industry.

"However, they are not abandoning the projects," he said. "They are pausing."

Accommodations are important to Atlanta. Tourism is a more than $11 billion industry in the metro area, and Atlanta is one of the nation's biggest convention and business cities.

While metro Atlanta has one of the nation's largest supplies of hotel rooms -- about 93,000 -- most are in the suburbs. To compete with cities such as Chicago, Orlando and Las Vegas, more rooms are needed inside the Perimeter to handle conventions and visitors to the World of Coca-Cola, the High Museum of Art and Buckhead restaurants.

Hotels announced in Atlanta over the past few years include new brands and well-regarded standbys, such as a Grand Bohemian Hotel in the Perimeter area, the Stanbury in Alpharetta, a Staybridge Suites downtown, and lodging by Hilton, Baccarat Hotel and Residences and 1 Hotel and Residences in Buckhead. Others speculated but not yet official include a Mandarin Oriental, a third Ritz-Carlton, a Waldorf-Astoria and a Trump hotel at the billionaire's condo project in Midtown.

If realized, they will join a number of first-of-their-kind nameplates in Atlanta, such as St. Regis, Rosewood, Loews and Palomar, all under construction or nearing completion. Starwood, owner of the W brand, is building a new hotel downtown and reflagging properties in Buckhead and Midtown. A second Hotel Indigo from InterContinental Hotels Group, which operates the Holiday Inn, InterContinental and Crowne Plaza brands, is being developed at the old Carnegie Building downtown.

Paul Breslin, managing partner of Panther Hospitality, said Atlanta is still ripe for development, but capital has tightened. What would have been green-lighted a year ago is now being scrutinized more thoroughly.

"There is a tremendous need for banks to make money," he said. "What's different is they are being more selective of the projects."

Timing also is crucial.

Beau King, developer of the 304-room Palomar in Midtown, said it would not have been as easy to get the boutique out of the ground in today's climate.

"I think it would have been a big problem," he said. "Underwriting is getting a lot harder. Everyone is pulling back."

As it is, the Palomar had to strip the condo component from its original plan after the housing market tanked.

"There is certainly a palpable chill in construction right now," King said.

Still, Woodworth doesn't see the hotel industry falling into the same chasm as the housing market.

"There is absolutely no depression in hotel values like we have seen in other parts of the real estate market," he said. The first half of this year is going to be tough. The second half is going to be much, much better."

Mike Sullivan, a spokesman for the Omni at CNN Center, also is optimistic. He said the rush to build new hotels in Atlanta says a lot more about the market than the time it's taking to get the deals done.

"The good thing is a lot of people are looking at Atlanta as a good market," Sullivan said.

BY THE NUMBERS

--$11 billion: Value of Atlanta's hospitality industry

--93,000: Hotel rooms in the metro area

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To see more of The Atlanta Journal-Constitution, or to subscribe to the newspaper, go to http://www.ajc.com.

Copyright (c) 2008, The Atlanta Journal-Constitution

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