A new owner's planned conversion of the Tremont Plaza Hotel in downtown Baltimore to an Embassy Suites, a Hilton Worldwide brand, would threaten the city-owned Hilton Baltimore hotel as it struggles to reach stability following the recession, city development officials have told Hilton executives.

The Baltimore Hotel Corp., which owns and developed the 757-room Hilton on West Pratt Street, said the lodging giant's plans to offer a franchise for a Hilton-branded hotel to the new Tremont owner violates the spirit of a hotel operating agreement between Hilton and the city. A geographic restriction prohibits new Hilton "group-oriented" brands in the central business district through January 2017, although it does not prohibit Hilton from opening a suites-brand hotel.


The suites-brand hotels do not generally include large meeting areas.

Still, city officials object, saying a new Embassy Suites at the St. Paul Place property would not only compete for the same guests but would do so with the same reservation system, guest incentive program and group sales team as the Hilton Baltimore. That could steer business away from the Hilton as it tries to recover from lower-than-expected occupancy and room rates during the recession, said Irene E. Van Sant, the Baltimore Development Corp.'s project manager for the Hilton.

"It could delay the Hilton Baltimore reaching stabilization," Van Sant said Thursday. "Hotels in this city have not recovered from 2008 and 2009. Occupancy is moving up, but it is in incremental steps. We are not back to the environment in terms of occupancy we were in 2005 and 2006, and the city has not recovered in terms of room rates."

Officials at Hilton Worldwide could not be reached Thursday.

The West Pratt Street hotel was financed with $300 million in tax-exempt revenue bonds, issued by the city in 2006, but this year Baltimore Hotel Corp. had to draw $3.8 million from its operating reserve account to cover bond debt service payments typically paid out of hotel revenue.

In a June 20 letter to John J. Koshivo, a Hilton Worldwide development vice president, the BDC, on behalf of the city's hotel corporation, outlined its opposition to Hilton's turning the Tremont into an Embassy Suites.

The BDC said the Tremont was unlike other all-suites brands and should be subject to the geographic restrictions. With 390 rooms, it is larger than most suite-style hotels and offers a large meeting space in the adjacent Tremont Grand banquet hall.

The Tremont Grand's 45,000-square-foot conference center would position the Embassy Suites to compete with the city-owned Hilton's 60,000 square feet of conference space for local and regional groups, according to a letter signed by Van Sant.

"The fact that it is part of the Hilton family in terms of sharing similar reservation system and sales organization is a significant concern to us," said Michael Doyle, an executive vice president with Capital Hotel Management, a hotel asset management firm that works with the city to oversee the Hilton. "There are a number of segments in each of the [transient and group] categories where both the Embassy and Hilton Baltimore would compete."

For 2012, the city-owned Hilton projects revenues of $48.5 million and estimates an occupancy rate of about 64 percent, Van Sant said. Room rates averaged $171 last year — significantly lower than the $208 expected when the bonds were underwritten in late 2005. Reaching a stable level would mean an occupancy rate of 70 percent or greater and at least $55 million in annual revenues, Van Sant said.

In the letter, Van Sant also said Hilton's management fees from the city could be at risk. Hilton Worldwide had agreed to defer $500,000 of its 2012 base management fee until 2014 because of insufficient cash flow, Van Sant said.

She said she became aware in May that potential new owners of the Tremont were in talks with Hilton Worldwide about opening an Embassy Suites. In June, she said, the city learned that Chartres Lodging Group, a San Francisco hotel investment company, had bought the property.

Chartres Lodging officials could not be reached Thursday.

Before selling the Tremont, former owner William C. Smith & Co. considered converting the property into a mix of rental units and long-term guest suites.