Marriott, Starwood, Accor Delay Hotels; Demand Falls

Marriott, Starwood, Accor Delay Hotels; Demand Falls

New York, Oct. 10 (Bloomberg) -- Marriott International Inc., the largest U.S. hotel company, has postponed construction of about 5,000 hotel rooms because of reduced demand after last month's terrorist attacks.

Starwood Hotels & Resorts Worldwide Inc., the world's biggest hotel owner, and Accor SA, the biggest in Europe, also are delaying projects, after U.S. hotel revenue fell 37 percent the week after the attacks and 24 percent the week after that.

The decisions to delay construction show that the industry leaders don't expect demand to return to normal at least until 2003. The three companies lowered earnings forecasts or announced cost cutting programs after the attacks.

``This is a very difficult time to be developing hotels,'' said Marriott Chief Financial Officer Arne Sorenson.

Room completions will fall 28 percent next year to 81,800, the least since 1995, according to PricewaterhouseCoopers, which has lowered its projection for this year by 19 percent.

Marriott said its investment spending for next year will be one-third less than this year's level of $1.3 billion to $1.4 billion. The company plans to open 60,000 rooms by 2003, about 10,000 less than it had planned four months ago.

About 5,000 of the planned rooms have opened, and the rest have been postponed or canceled because of the attacks, Marriott spokesman Tom Marder said. He wouldn't specify which projects were canceled.

Starwood said in a conference call last month it is pushing back opening dates for all projects over $3 million, including a St. Regis hotel in San Francisco being built now. Company officials weren't available to elaborate today.

Accor said development of Motel 6 hotels has been halted following the attacks and the development of Sofitel hotels in Dallas and San Francisco has been put on hold.

Shares of hotel companies have fallen since the attacks. The Standard & Poor's Hotel/Motel Index has fallen 21 percent since Sept. 10.

Timeshares Postponed

Hilton Hotels Corp., whose chief executive, Stephen Bollenbach, has said hotel demand will bounce back faster than expected, is postponing building two timeshare projects in Las Vegas and Orlando, Florida, for about six months.

Hotels in Hawaii, where Marriott and Starwood have at least six properties apiece and Hilton owns a timeshare and the Hilton Hawaiian Village in Honolulu, were especially hard hit.

Occupancy in the state fell 52 percent from a year earlier the week after the attacks, compared with a 26 percent decline nationwide. A delayed recovery would cost Hawaii $1 billion in revenue and up to 24,000 tourism-related jobs, according Ernst & Young.

One obstacle to hotel development is financing. Lenders who were wary of construction loans as U.S. economic growth fell to its slowest pace in eight years earlier this year are even more reluctant after the attacks.

Kibosh on Hotels

``If you can get a construction loan for a hotel today, good luck,'' said John Levy, head of real estate investment banking firm John B. Levy & Co. He said hotel companies may pay 75 to 100 basis points more after the attacks to borrow for development, assuming they can find a lender. ``This will certainly put the kibosh on anyone who wants to build a new hotel.''

Gaylord Entertainment Co., owner of the Grand Ole Opry in Nashville, Tennessee, delayed the opening of a 1,500-room hotel and convention center in Grapevine, Texas, by nearly a year.

The hotel's $450 million cost is being financed partly by earnings from the company's Opryland Hotel and proceeds from asset sales -- two sources of income that have fallen since Sept. 11.

Gaylord, which was designing some areas of the property while it was being built so construction could proceed as quickly as possible, now will delay finishing the hotel until as late as June 2004 instead of August 2003, Chief Executive Colin Reed said.

`Unpredictable'

``Life is a little unpredictable at this stage,'' said Reed. ``We aren't going at such a hectic schedule to have this thing open by August 2003.''

Fewer new hotels will help existing hotels when demand returns, lenders and consultants said. Many U.S. hotels have been struggling with 50 percent occupancies and have cut rates to lure travelers.

``I think it's smart business sense,'' said Ken Hargreaves, a managing director at David L. Babson, who provides loans to existing hotels for refinancing. ``They have to wait till the demand side of the business comes back before you add new supply. Historically in the hotel business too much supply has been the bigger problem,'' rather than lack of demand, he said.

Revenue per available room, a measure of demand in the industry, will decline through the end of the year and the first part of 2002, PricewaterhouseCoopers said. By 2003 revenue per room will rise 4.7 percent, the firm said.

``If I'm right 2004 should be a fantastic year because of lack of supply,'' said Laurence Geller, chief executive of Strategic Hotel Capital, which owns $4 billion in hotels. For right now, ``We're telling anyone who is thinking of developing to take two aspirin and lie down and wait for the moment to pass.''

Some developers who have broken ground are going ahead with projects as scheduled. Developer Manchester Resorts is proceeding with its 750-room expansion of the Hyatt Regency San Diego Hotel. Construction began in July and will be completed in 2003.

``We're driving piles now,'' said Peter Litrenta, senior vice president at Manchester. ``We're hoping there are not other incidents and the country will get back to business. We're under way so we really can't stop.''