July 2003 - During the late-1990s heyday of construction, the county saw its room supply increase by as much as 6% in one year. Some industry analysts thought there was room for even more.

But in the post-Sept. 11, 2001, world, a sluggish economy, tight financial markets and uncertain tourist demand have worked to keep potential developers at bay.

Last fall, Los Angeles-based PKF Consulting forecasted OC room growth to be 3.3% this year�a figure that may be hard to reach in the current climate. Bruce Baltin, senior vice president of PKF, said he still believes there�s room for more hotels�eventually. �Not today,� he said, �but over time, yes.�

The opening of new coastal resorts in the first quarter boosted OC�s room count by almost 1,000.
 

But those resorts�the Hyatt Regency Huntington Beach Resort & Spa, Montage Resort & Spa in Laguna Beach and the Balboa Bay Club Resort & Spa in Newport Beach � were well along in the planning process before the market softened. �You need a lot of capital behind you to go forward in development today,�

Hyatt Regency Huntington Beach Resort & Spa 21500 Pacific Coast Highway Huntington Beach, California

Only three other projects have been completed this year, all smaller, mid-market hotels. Those include a 100-room Holiday Inn Express in Garden Grove, which opened in April; a 112-room Extended Stay America in Yorba Linda, which opened in May; and a new Residence Inn by Costa Mesa-based Tarsadia Hotels, which opened in Garden Grove on June 30.

Baltin said the number of mid-market hotels is likely to continue to grow because they�re geared to the commercial market.

�Even modest economic growth allows for future (hotel) growth,� he said.

For now, the county�s pipeline is nearly empty. Only two mid-market hotels�a Hilton Garden Inn and a Courtyard by Marriott, both in South County�are under construction in OC, and only a handful of projects are set to get under way in the next two years.

That pattern is a reflection of the U.S. market. The national hotel room supply grew by 1.8% in 2002, according to Hendersonville, Tenn.-based Smith Travel Research. Growth this year was a mere 1.5% through May, versus a year ago.

A June report from Smith Travel Research showed only 91 hotel projects under construction in the entire Pacific region in May.

But things could quickly change in the coming months.

Jim Butler, partner in Jeffer Mangels Butler & Marmaro LLP, a Los Angeles law firm specializing in the hospitality industry, said lenders have begun to show a greater appetite for hospitality projects of late, including new construction.

And some financial providers told attendees at a hotel investment conference in May that they�re actively seeking investment in some hotel sectors � most notably the high-end and limited-service markets.

For now, hotels in the OC pipeline include a Doubletree in Anaheim slated to open in 2005; a new boutique resort in the Pacific City development at Huntington Beach by Newport Beach-based Makar Properties LLC; and the recently announced Pelican Hill Inn in Newport Beach by The Irvine Company. The latter two properties are set to open in 2006.

Future Anaheim Growth

In Anaheim, the $600 million Gardenwalk mixed-use development�now in phase one construction�will include as many as three hotels, with a total room count of 1,662. None of those hotels will be built in the first phase.

The Pelican Hill Inn has been on the drawing boards for some time while Irvine Co. officials waited for the market to show signs of improvement.

It will be the fifth new resort on Orange County�s coast since 2001. Eric Prevette, president of Resort Properties at the Irvine Co., said in a release that the hotel would help reinforce OC as a visitor destination.

But Butler said that�s not a given. �Adding a new hotel to a market does not automatically generate additional demand,� he said. �(That) is created when something about the new hotel creates a dynamic beyond the facility itself.�

Makar Properties� Pacific City mixed-use project was officially announced in April and includes residential, retail and resort parts.

The resort is slated for a 4.2-acre parcel in Huntington Beach, near the Hilton Waterfront and Hyatt Regency Resort & Spa. Project manager Ethen Hatcher said the company hopes to begin the first phase of construction by next spring.

�We�ll probably start with the retail component,� he said.

The hotel, tentatively set for up to 400 rooms, will likely come in the second phase, Hatcher said, and will focus on the leisure market.

Despite a dearth of local construction, some local hoteliers still are growing � though not always in OC.

Costa Mesa-based Ayres Hotel Group, a family-owned business that owns and operates 17 hotels, plans to open another new property in Hawthorne before year�s end. The company also has plans to expand the Ayres Suites Hotel in Mission Viejo, adding 90 rooms and expanding the meeting space by 1,500 square feet.

A similar expansion is planned at its Corona West hotel, where 69 suites will be added.

Meanwhile, San Clemente-based Sunstone Hotel Investors LLC has two new hotels in the works�a JW Marriott in Cherry Creek, Colo., and a Residence Inn by Marriott at the Mayo Clinic in Rochester, Minn.
 

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.