Wednesday, March 25, 2009

Trading Residences for Hotel Rooms: Not the Right but the Right Now

Well lets face it, we're in the throws of the worst economic melt down since The Great Depression. One of the largest factors that led to this melt down was the Real Estate Bubble that began inflating in 2002, leveled off in late 2006 and burst in late 2007. Everyone knew this was coming, but like an addiction Home Builders over built and over borrowed, Home Buyers bought homes they couldn't afford using an adjustable rate mortgage where they paid only interest and put nothing down. Once the bubble burst these inflated home prices began to fall drastically leaving millions of home owners paying more for a house they bought two years ago than it's worth today. Even worse, the low interest rates began to rise inflating mortgage payments even higher. Another problem with adjustable rate mortgages is that when you're done with that initial period you're mortgage can go double or even triple. Very few people's salaries doupled or tripled so making these new higher payments have become impossible especially since many home owners could barely make the initial interest only payments, amassing huge credit card debts.
So what's happening now? Foreclosures. Homeowners who got in way over their heads are now unable to pay their mortgage and can't sell their house either, nobody's buying and if they were the home owner would take a huge loss because of the depreciation of the home's value. Now how does this translate into an economic melt down? I'm no economist but I'll take a crack at it anyway, when lending and credit agencies aren't paid back the money they've lent they can't do business and they go bankrupt, this also means that businesses that wish expand can't do so. Homebuilders are unable to sell new construction or take out loans themselves and what they've borrowed to build the houses they can't sell, they're unable to pay back.
Before the economic meltdown there were many signs of the upcoming doom that nobody paid attention to. Baltimore caught wind of this before many other cities and counties which made the impact minimal here.
It all started with the fate of Olmstead at Charles Village which would have been $700,000 condos. Then Streuver Brothers Eccles and Rouse, the builders scaled the project back to rental apartments and sought subsidies from the city. The site remains vacant.This was all Baltimore developers needed to put the brakes on development projects, a very smart move. One type of construction that hasn't been effected as bad as the housing market is the demand for Hotel Rooms. This means that certain projects have been converted from residential units to Hotel Rooms.Now is this the right thing to do? Or is this the "right now" thing to do? Granted the city will over time need a total of 7,500 additional hotel rooms but putting them where residential units were originally supposed to go may halt the city's plans to help regain the 337,000 people it lost since its peak in 1957. There are many other parts of Downtown that could use the hotel space than around the harbor. The Westside of Downtown, State Center, Station North, and Mount Vernon all could benefit from Hotel Rooms which will help some of these neighborhoods become more of a tourist destination and make these neighborhoods a more happening place. Also, the city wouldn't gain the tax base it would get if these developments were turned into Hotels.
So far only four devlopments have either committed to or discussed switching from residential to Hotel but I fear there will be many more to come.
There's 30 East Pratt which is in between the Galleria and the old Examiner Offices,
The Old Mechanic Opera Theater in Charles Center,
The Parking Lot at Light St. and Conway, and the old Hutzlers at Calvert and Lombard next to the Brookshire Suites (yes Hutzlers opened an Inner Harbor Store from 1981-1986.)The Hutzlers site is the only one where construction has begun and two hotels of the Hyatt Brand have committed to opening there.
Now I recall someone inking a post last June instructing developers to "Sit on it" until the economy becomes development friendly once again and resume with their original plans. Well, it was me who inked that post and I stand firmly in that belief. There are other sites in Baltimore that have put their development on hold and I'm hoping that they can be salvaged and eventually built as they were first planned. They include; Waterview Overlook in Cherry Hill,Pinnacle 1 and 2 in Harborview, The Residences at Lexington Market,
Federal Place in Federal Hill, Vistas on the Lake in Reservoir Hill, Harbor Point in Fels Point,
Canton Crossing (the residential part),Tide Point (the residential part), Greektown condos, (1,000 + in high rises), the parking lot surrounded by Guilford Ave., Holiday St., and Saratoga St.,Brewers Hill, and the Gateway at Washington Hill.
There are those that began building before any signs of economic crisis and are having trouble selling or renting out their units. they include
Camden Crossing in Pigtown, Spinaker Bay in Inner Harbor East,
Athena Square in Greektown, Apartments at the corner of Charles and Preston in Mount Vernon,
The Ritz Carlton Residences,Silo Point in Locust Point,
Sailcloth Factory,
Stewarts,Greenhouse,and the Atrium all located in Downtown's Westside.

Yes, the economy is bad and while trading residential units for Hotel Rooms may be the "right now" thing to do it's not the long term right thing to do, those 7,500 Hotel Rooms can be better spread out throughout Downtown.

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