William C. Smith & Co. Inc. bought the St. Paul Place building in the early 1980s and transformed it from apartments and offices into a boutique hotel. But Smith has seen more demand for long-term stays and hopes to fill a niche for corporate assignments, said Carol Chatham, the company's vice president of marketing. People who come to Baltimore for medical treatment also have sought long-term stays, she said.
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The city's more expensive apartment complexes — largely in and near downtown — had a lucrative 2011, said Grant Montgomery, a vice president at real estate research firm Delta Associates. Rents rose 8.2 percent, compared with an average annual increase of 2.2 percent over the last several years, and vacancy rates dropped.
"It's definitely an owner's market right now rather than a renter's market " Montgomery said. "I could certainly see why people would be looking for new opportunities in Baltimore, and particularly an opportunity such as this."
He figures Smith will need less time and money to convert the Tremont to apartments than a developer would need to build something from scratch, especially since the hotel was once an apartment complex.
Five apartment projects are under construction in Baltimore and three of them are likely to finish this year, he said, a sign that construction is picking up after the recession. Still, he said, that's not a lot of extra supply.
The Downtown Partnership of Baltimore has advocated building more rental housing and putting the brakes on further hotel development until occupancy rates improve. The group, which works to improve the area, set those goals in last year's strategic plan.
Converting hotel rooms into apartments and extended-stay suites "basically kills two birds with one stone," said Kirby Fowler, the partnership's president. "On the one hand, you increase the residential supply, and on the other hand, you decrease the number of hotel rooms, both of which will have positive effects for downtown."
Business at downtown hotels seems to be improving, he said, "but the hotels are nowhere close to where they've been in 2007, which was a banner year."
Downtown apartments, on the other hand, are largely full. "In most cases, apartment buildings are 100 percent occupied with wait lists," Fowler said. "So I think this is a smart strategy to pursue."
Some other downtown apartment complexes have a "hybrid component" similar to the Tremont's plan, with formal or informal extended-stay options, he said.
The Tremont remodeling will include expansions of the hotel's fitness center and the Plaza Deli. The Tremont Grand on North Charles Street, a former Masonic Temple that has been connected to the hotel by a walkway since opening in 2006, will remain a banquet and meeting facility. It hosted more than 100 weddings last year, and the owners hope to boost business there, Chatham said.
W. Christopher Smith Jr., the company's chairman and chief executive, bought the former temple in 1998 and created 45,000 square feet of meeting and event space in a $27 million project that preserved ceremonial rooms with ornate ceilings and marble floors. It was hoped the investment would help boost occupancy at the Tremont while attracting events business.
But since then, the travel industry has struggled through a recession and hundreds of new hotel rooms have been added downtown.
The one-mile area around Light and Pratt streets has about 8,000 hotel rooms, 268 of which were added last year with the openings of the Four Seasons Hotel Baltimore and the Inn at the Black Olive, according to the Downtown Partnership.
The area has about 7,900 apartment units, but no apartment development was completed last year.
At the Tremont, hotel occupancy hovered in the low- to mid-70 percent range before the recession but has slipped lower more recently, Chatham said.
These days, hotel business often comes from companies that are shying away from permanent employee relocations and are instead booking several months of accommodations for temporary assignments.
"We've seen a big uptick in that, more so than the single-night occupancy," Chatham said. "And there are just a lot more hotel rooms in Baltimore now than in the '80s when [the Tremont] was converted from apartments."
The Tremont will remain a hotel through the end of this year. Construction will likely start by the end of the year, with the first apartments expected to be ready by the first quarter of 2013, Chatham said.
About a half-dozen members of the Tremont's convention sales staff have been laid off as the hotel shifts away from seeking convention-goers to fill hotel rooms. The hotel now employs about 180 people, and managers haven't yet determined how many people will staff the converted Tremont, Chatham said.
"We'll still need [employees] in maintenance and operations, and to work in the deli," Chatham said. "We don't anticipate it would be a big change, but until we get the operations worked out, it's a moving target. We hope that with turnover, we won't have to do significant layoffs."
Judy Wilbur said she left the Tremont's sales staff in December to become assistant director of sales at the Hilton Baltimore.
The Tremont, she said, "is a very nice hotel, and they just completed a renovation at the end of 2010. When I left it, business was better, moving forward, than it had been in previous years."