Detroit's Hotel Doldrums

Detroit’s recently renovated hotel scene is struggling to keep up with tax payments as the town’s economy continues to deteriorate. Bizjournals.com published an article on the topic, and you can find an excerpt of their post below. Alternatively, the full story can be found here.

Just before a glittering new terminal opened at Detroit Metro Airport seven years ago, I flew out for an airport-arranged private tour. Then I drove downtown for my own self-guided view of the seamier side of Detroit's travel infrastructure.

Four of the city's once-famous deluxe hotels were ornate tombs, abandoned for decades and facing the wrecker's ball. Two starkly modern properties built in the 1960s were shabby and sorely in need of new ownership. Even the 73-story hotel in the Renaissance Center, opened in the late 1970s as part of a massive urban-renewal project, was dreary and depressing.

"TERRIBLE!" I scribbled in my notebook in 2002. "Someone should fix."

And fix they did. The Madison-Lenox and the Detroit Statler were demolished, but the Book Cadillac and the Fort Shelby received hundreds of millions of dollars worth of renovations and restorations. The Book, as locals call it, reopened to raves in October and the Fort Shelby came back to life two months later. One of the 1960s icons, the St. Regis, became a spiffy boutique property. The other, the Hotel Pontchartrain, was recently renovated and is now called the Riverside. The cylindrical skyscraper hotel at the Ren Center? It's a Marriott now, and it sparkles. And the city's three casinos have each opened upscale hotels with Vegas-style perks and amenities.

But this is Detroit, where hotel happy endings are always the start of the next lodging nightmare. If anything, the Motor City's hotel scene is in worse shape today than seven years ago.

More than half of Detroit's estimated 40,000 guestrooms are empty, and PKF Hospitality Research says lodging demand will fall further this year. The St. Regis is in receivership. The Riverside has been picketed by employees who say they haven't been paid, and the Detroit News says the hotel owes almost $700,000 in back taxes. One of the casinos is in bankruptcy and another is for sale. Only a handful of buyers have closed on the dozens of pricey condos atop the Book Cadillac. The Fort Shelby's new rental apartments are mostly empty too. And Detroit's REVPAR (revenue per available room), the key measure of financial health in the lodging industry, is one-third lower than the national average.

"The statistics are scary," admits Shannon Dunavent, general manager of the Doubletree Guest Suites hotel that was lovingly carved out of the carcass of the Fort Shelby. "I've been working in Michigan for 20 years and I won't lie to you. There's no new business in the market. We're all trying to steal from the other guy to survive."

It doesn't take a genius to figure out what's ailing Motown's hotels: The automotive business has been careening downhill for decades. Detroit has never been able to replace cars, and the thousands of related businesses that depend on the carmakers, as the city's economic engine. Hell, even Motown Records moved to Hollywood almost 40 years ago.

Cities and States Press Travel Sites to Collect Hotel Taxes

From The New York Times:

There is a reason some online travel sites can offer cheap hotel rooms: State and local governments contend that the sites are not paying all of their taxes.

And faced with fast-shrinking budgets, those governments want the online travel services like Expedia Inc., Priceline, Orbitz and Travelocity to hand over what could amount to tens of millions of dollars.

The issue arises because the travel sites use a two-step process for billing and paying for hotel rooms. The site first bills the consumer for the cost of a hotel room, plus a service fee. Separately, the hotel pays taxes to local governments based on the price actually paid by the travel company — an amount less than the price the consumer pays.

Lawyers for the various governments argue that the travel companies owe hotel occupancy taxes based on the higher price consumers pay.

“That’s the insidious nature of this scam,” said Patrick O’Connell, a lawyer at Baron & Budd, a firm based in Dallas that represents municipalities seeking tax revenue. “The hotel pays tax on the amount that the hotel was paid. The city doesn’t have a clue that the transaction was actually conducted by the online travel company.”

Anaheim, Calif., is one of dozens of state and local governments trying to collect from the online travel services. This month, a city hearing officer concluded that travel companies owed Anaheim $21.3 million in back taxes, interest and penalties.

“There is no reason why online travel companies should be paying a different amount of taxes than others who book the same hotel rooms,” Mayor Curt Pringle of Anaheim said in a statement.