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Southern California Hotel Developers Put
Hotel Plans on Hold as Land Prices Surge

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By Sandi Cain, June 2005
Orange County Business Journal Staff

One thing is conspicuously absent amid a flurry of Orange County hotel renovations: the sound of new hotel construction.
 

“We’re not seeing a whole lot of dirt moving,” said Bernie Murphy, Western region vice president for office of hotel consultant Plasencia Group Inc.’s Encinitas office.

While developers are under way with housing, high-rise condo and office plans, hotel owners have been reluctant to plunge into a high-priced market for new construction.
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Rendering of Doubletree Guest Suites
in Anaheim: 251-room hotel expected
to open by end of the year
“Land prices are being driven up by demand from condo developers and other retail land developers who can typically pay much more,” said Alan Reay, president of Atlas Hospitality Group in Costa Mesa.

Atlas, which publishes a twice-yearly development report on the California market, recently released preliminary figures showing a 26.7% decrease in the number of OC hotel projects in the planning stage, from 15 at mid-year 2004 to 11 this year.

By contrast, San Diego’s planning pipeline has grown 23.5%, from 34 to 42 projects in the same period and Riverside County has seen its pipeline swell from nine projects to 15—a 66.7% increase.

Barriers to development for full-service hotels have turned investors to existing hotels rather than building new ones, according to a survey from PKF Consulting’s hospitality group in Atlanta.

“New hotel development is slow due primarily to the high cost of land and construction,” Reay said.

Last fall, PKF Consulting of Los Angeles projected OC room growth to be a scant 0.5% this year—around 300 rooms—with average daily rates projected to increase by 3.8% versus 2004 to roughly $105. So far, no new hotels have opened in OC this year.

Fewer than 10 hotels have opened in all of Southern California since January—five of them in San Diego County.

In OC, two hotels are expected to open by the end of the year: the 251-room Doubletree Guest Suites in Anaheim and the 129-room Staybridge Suites in Lake Forest.

Hotels under construction include the long-delayed 65-room Headlands Resort in Dana Point, a 110-room Hampton Inn & Suites in Cypress and a 150-room Courtyard by Marriott in Anaheim.

Grading just began on the Headlands project, which also includes residential and commercial development. Work on the Hampton and Courtyard began this spring.

Garden Walk Delay

Other projects in the planning stage have languished for several years, including three hotels for the Garden Walk complex along Katella Avenue in Anaheim. A mid-June update on Garden Walk indicated phase one would be complete by 2007. The hotels are set for a later phase.

A Renaissance Club Sport Hotel in Aliso Viejo initially was set to begin construction by the end of last year. It’s part of the next phase of Parker Properties’ Summit campus development. Construction now is expected to begin in November or December, with completion set for 2007.

The ClubSport concept—part spa, fitness center and sports complex—is a project of Pleasanton-based Leisure Sports Inc., a private developer and operator of high-end sports clubs and hotels in California, Nevada and Oregon.

In 2002, Leisure Sport and Marriott International launched the upscale hotel-fitness resort under the Renaissance ClubSport name in Walnut Creek. Leisure Sports operates the club and the hotel as a franchisee of Renaissance Hotels & Resorts.

Plans for the Aliso Viejo development include 175 rooms, a 67,300-square-foot sports club and 4,000 square feet of conference space, aquatics center, NCAA-regulation gym, childcare facility and indoor/outdoor bar overlooking the pool.

Next year isn’t expected to bring much more activity locally beyond the 149-room Residence Inn by Marriott in Huntington Beach.

The Irvine Company’s Pelican Hill Inn and Makar Properties’ Pacific City Hotel are unlikely to open before 2007. And in Newport Beach, a proposed 110-room Marina Park Hotel was opposed by residents and now is being fought over in court.

Los Angeles County also has seen minimal new development this year. The Hilton Los Angeles/San Gabriel Valley opened in January and a Best Western Long Beach—that city’s first new hotel in five years—are among the only projects to come to fruition in 2005.

But some bigger projects are in the works in L.A., including LA Live, a $1 billion downtown development by Anschutz Entertainment Group that includes a 1,200-room Hilton and a smaller hotel expected in a later phase.

In Beverly Hills, voters in March approved a 214-room Montage Hotel & Public Gardens—the second venture for the fledgling Montage Hotels & Resorts and its development partner, the Athens Group of Phoenix.

The partnership’s first venture was the Montage Resort & Spa in Laguna Beach.

And the Dole Food Co. is building a luxury hotel near its Westlake Village headquarters to be managed by Four Seasons Hotels and Resorts.

The 270-room hotel is being built by Dole subsidiary Westlake Wellbeing Properties LLC to go along with a 20-acre complex that will include a health center, spa, TV production center for a food channel proposed by Dole and restaurants. The hotel is set to open in spring 2006.

It’s a different story in San Diego.

A 44-room oceanfront hotel called Tower 23 (for its closest neighbor—a lifeguard tower at Ocean Beach) opens July 1 and a 120-room Homewood Suites by Hilton San Diego/Del Mar—the first Homewood Suites in San Diego—opened earlier this month.

Hotel Solamar by Kimpton Hotels & Restaurant Group—the San Francisco company’s first entry into Southern California—debuted this spring next to San Diego’s Gaslamp District downtown, as did a Hilton Garden Inn at Rancho Bernardo.

Tower 23, created by new San Diego development and management firm Bond Urban Development, is the first of what partners Robert Watson and Brett Miller hope will evolve into a group of small, luxury hotels.

“We’re bullish on San Diego and the lifestyle hotel market,” Watson said.

Sales Frenzy Continues

While hotel construction remains all but dead, the brisk pace of hotel sales continues in Orange County.

Recent hotel deals include San Clemente-based Sunstone Hotel Investors Inc.’s buy of the Sutton Place Hotel in Newport Beach from Tarsadia Hotels, also of Newport Beach.

Another deal: the 230-suite Hilton Suites Anaheim. The business hotel was sold by Beverly Hills-based Hilton Hotels Corp. to RLJ Urban Lodging Fund LP, an affiliate of RLJ Development LLC in Bethesda, Md., as part of a three-hotel sale for $72 million.

The Hilton Suites represented an estimated $23 million of that sale, which also included hotels in Beachwood, Ohio, and Phoenix.

It was the third OC hotel bought by RLJ Urban Lodging this year. Other acquisitions for a total of $122 million include the Residence Inn Anaheim Resort in Garden Grove, the Residence Inn San Diego in Mission Valley and the Washington Terrace Hotel in Washington, D.C.

RLJ Urban Lodging is a private equity fund created by RLJ Development to acquire and develop hotels in urban markets under the Hilton and Marriott names.

“With the (equity from the) new fund, RLJ thinks California still has growth potential for hotels,” said Bernie Murphy, Western region vice president for the Encinitas office of The Plasencia Group Inc., a hospitality consulting company that represented Hilton Hotels Corp. in the transaction.

RLJ Development’s Chairman and Chief Executive Robert L. Johnson is the founder and chief executive of BET cable network and owner of the NBA’s Charlotte Bobcats and the WNBA’s Charlotte Sting.

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Sandi Cain is a freelance writer and contributor to the Orange County Business Journal and meetings industry publications. She specializes in hospitality, tourism and travel. Cain holds bachelor’s and master’s degrees in education from Kent State University in Ohio, where she majored in social studies. A former high school teacher, she has written for niche-market sports publications in the U.S., England and Australia and formerly worked in both the printing and high-tech industries. A Cleveland, Ohio native, Cain hasbeen a resident of Laguna Beach since the late ’70s. She enjoys travel, gardening, reading and spoiling her three cats.
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Contact:
Sandi Cain
Laguna Beach CA
949-497-2680
scainado@earthlink.net

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