Buildings under construction line Thames Street in Portland in May. A recent study shows hotel growth in the city is well above the national average and suggests the business is one of Portland’s most lucrative commercial sectors.
With Portland adding hotel rooms at a rate well above the national average, city leaders are looking to create a new fee to help address a shortage of housing that’s affordable to the typically low-wage workforce needed to operate these businesses.
Officials say the new fee is needed because hotels are very profitable, yet they rely on low-wage workers, who often need to – but can’t afford to – live near work.
The proposed $5,000-a-room hotel fee – dubbed the hotel linkage fee – would apply to new hotels being built and would be placed into a fund used to encourage affordable housing.
Although the fee will not capture the more than 730 hotel rooms already built in Portland since 2012, city officials say the fee could apply to roughly 400 hotel rooms expected to be built by 2020. That could generate $2 million in subsidies for affordable housing projects.
“That’s real money,” Mayor Ethan Strimling said.
Planning and Urban Development Director Jeff Levine said the fee being recommended is the result of a study conducted by the Greater Portland Council of Governments. The study found that Portland is adding hotel rooms much faster than the national average.
From 2013 to 2016, the number of hotel rooms increased by 14.6 percent, compared to the national average of 2.9 percent, he said. The research also showed that hotels have a return on investment that’s three to five times greater than other commercial sectors, including restaurants, retail and office space. And even with that growth in hotel rooms, nightly rates and the revenue per room-night have continued to increase.
“Clearly the data suggests that the hotel market is one of the most lucrative in Portland and that’s partially why we’re seeing so many hotel proposals in the city,” Levine said. The city currently has 2,850 hotel rooms, with hundreds more in the pipeline, he said.
Levine said that other U.S. communities have linkage fees, but they usually apply to all commercial properties. Portland would be one of the few – if not the only – community to target only hotels.
“This is one of those Portland moments that we come up with occasionally,” he said.
Levine said developers could avoid paying the fee if they provide one low-income housing unit for every 20 hotel rooms either on site or at another location in the city, though he doesn’t expect many would do that.
Word still seemed to be getting out to the development and hospitality industry about the proposal, which could see a vote before the City Council by the end of the year. The full fee would be assessed on hotel projects that are not under construction, and a $2,500-a-room fee would be assessed for projects under construction but not ready for occupancy at the time the ordinance is enacted.
The fee would be assessed when the building is finished, Levine said. It would be up to the developer and hotel operator to decide who pays.
Developer Joe Dasco said nobody mentioned the potential fee during last Tuesday’s Planning Board meeting, during which he received approval for a 157-room hotel on Commercial Street. If Dasco pulls his permits before the ordinance is enacted, he faces fees of $392,500. If the ordinance goes into effect before he gets building permits, it would be $785,000.
“I don’t think they should single out the hotel industry,” Dasco said. “I can understand the justification for any industry that relies on a low-wage workforce and the linkage to housing. What’s different from the hotel (and) the restaurant industry?”
Steve Hewins, president and CEO of the Maine Innkeepers and Maine Restaurant associations, said he just heard about the proposal, which produced a “myriad of concerns.”
Although the hotel industry is having trouble finding enough workers, Hewins disputes the underlying assumption that new hotels are causing a lack of housing. He thinks the city should be doing more to improve public transit so people can commute to Portland without cars from surrounding communities, building more affordable housing and investing in a convention center, which would make tourism more of a year-round industry.
“There’s been no movement in any one of those areas,” he said. “Instead, the answer is to make this extremely odd connection between housing and hotels. My first impression is it doesn’t make sense to me.”
Other developers who have announced plans to build hotels – including David Bateman, who is pitching a hotel on Fisherman’s Wharf and partnering with Fred Forsley on a hotel-brewery project in the India Street neighborhood, and Casey Prentice, who is partnering with West Elm to build a hotel at the former Portland Co. complex on Fore Street – couldn’t be reached for comment.
City officials have long sought the ability to assess a local option sales tax in order to capitalize on the added demands for services associated with tourism. Although the Maine Legislature has repeatedly voted against such a tax, the city does have the ability to assess fees, and this is just one of several proposals being considered by the council, which is also studying whether to roll out a program for nonprofits to provide payments in lieu of taxes, assessing standard impact fees on new developments, and increasing the costs of business licenses and building permits.
The City Council’s Housing Committee last Wednesday sent the proposal to the Planning Board with a positive recommendation. The board will report back to the full council with its own recommendation.
The proposal also has the support of Mayor Strimling, who has been advocating for a $10 million injection into the city’s Housing Trust, which could include bonding at least half of that amount, as well as increasing requirements on developers to produce affordable housing and strengthening tenant protections.
Strimling said he supports the linkage fee, even though he’d like to see it applied to all commercial properties.
“I certainly support going more broadly, but I’m ready to support this so we can get this in place,” Strimling said. “I don’t want the Planning Board going backwards on this or feeling pressure from the hotel industry to reduce the fee below what’s being recommended.”