B&B's as barometer of a struggling economy

Some owners cash out on booming real estate values as travel patterns change and operating costs rise.

Charlene Denhardt always welcomed guests at her Morning Glory Bed and Breakfast with hot tea, tips on local delicacies, and directions to the best-hidden beaches on Connecticut's historic shoreline. For the regulars, there was always a warm embrace.

She now picks up the sign that hung in front of the gray clapboard saltbox on Boston Post Road for more than 14 years and shakes her head. "The guests just weren't there anymore," she says. "Last winter, whenever the phone rang it was always one of my children, not a guest."

Last week, Ms. Denhardt closed her B&B and sold the exquisitely decorated house as a private home. It was tough decision for the natural innkeeper, but one made easier by the double challenges confronting America's travel industry - the continuing stagnation of the economy and the resultant drop in leisure travel, combined with a sharp spike in costs that include insurance and real estate taxes.

Across the country, revenues at inns and B&B's are down an average of 12 percent, according to the Professional Association of International Innkeepers (PAII), the largest membership organization in the country. In many places, particularly rural destination resorts like Telluride, Colo., and Martha's Vineyard, innkeepers are turning in their keys and cashing out on booming real estate values.

The situation is worst in places like Florida and Hawaii, states dependent on airlines to bring in many of their guests. And in Texas, a new requirement for wind insurance has knocked many small inns off the map.

But even as the economy takes its toll on the mom-and-pop operations that flourished in the past 20 years as alternatives to carbon-copy, corporate hotel rooms, local B&B's and inns and are actually faring better than their larger rivals. While occupancy was down about 4 percent between 2000 and 2002 for B&B's, it dropped more than 7 percent for full-service hotels, according to a survey by PKF Consulting in Atlanta.

For some savvy B&B owners in the right place - and quick to pick up on advances in technology - Americans' new penchant to travel to nearby destinations has meant business isn't bad at all.

"Inns have suffered, but it's not been catastrophic," says Hugh Daniels, chairman of the board of PAII, which has seen its membership drop from 3,300 to 2,900 in the past two years.

Mr. Daniels and others are quick to point out that what's happening in one part of the country doesn't necessarily reflect what's happening in another, because there are so many variables in play. So an inn that once thrived on foreign travelers may now be teetering on closing, while another in a less remote location may be booming catering to the city next door.

Two inns in Colorado are a case in point. The Cheyenne Cañon Inn is a historic old country house in Colorado Springs that catered to businesspeople as well as hikers looking to take on nearby Pikes Peak. The San Sophia Inn in Telluride is much more of a destination resort, where people have traditionally flown in from around the world for a week of skiing.

Both were hit by the overall drop in leisure travel. They also had to adjust to Americans' new vacation patterns: People tend to drive rather than fly, and now make reservations at the last minute, rather than six months in advance.

The Cheyenne Cañon also suffered from the dramatic drop in business travel. But Keith Hampton, who owns them both, shifted his marketing strategy, particularly for the Cheyenne.

"We concentrated on the regional market and did advertising in Durango, Phoenix, Grand Junction, and Albuquerque," says Mr. Hampton.

He also started creating weekend-getaway packages for special occasions. "People might give up on the leisure things, but they're always celebrating special occasions, like birthdays and anniversaries," he says. "And if a friend's getting married, they'll go."

As a result of the changes, business has rebounded much faster at the Cheyenne than at the Sophia, which is more remote and difficult to reach.

In Michigan, innkeepers face a similarly mixed picture. "Three out of 4 people are singing the blues," says Jack Zibell, executive director of the Michigan Lake to Lake Bed and Breakfast Association and owner of Shaded Oaks, a small B&B in Holland, Mich. "But 1 out of 4 is doing well."

In addition to the economy and the war in Iraq, innkeepers in Michigan had to cope with an unseasonably cold spring, which kept bookings down.

Denhardt, who owned the Morning Glory in Connecticut, had a big presence on the Internet that brought her visitors from New York and Boston, as well as a large corporate clientele. But the businesspeople have simply disappeared from her elegant rooms.

"I found that a lot of the companies I used to work with, if they have to give a class, they'll send a teacher into the company rather than have five people come here," she says. "It's just cheaper."

Even though Morning Glory was full on weekends right up to when she closed, Denhardt decided that uncertainty in the economy was such that it didn't make sense to keep her shingle out. Her house had quadrupled in value since she'd brought it.

"I'll miss it," she says, "but 14 years was a long time."

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