May 13, 2005 - Cathedral City, sandwiched between resort hot spots Palm Springs and Rancho Mirage, is banking on two new hotel s to make the city less of a drive-through and more of a destination.

"For years we have just been the home for all of the folks that work in tourism," said Paul Shillcock, the city's economic development director. "We're trying to become more of a player in the tourism industry."

The plan to build two new hotels isn't just unusual for Cathedral City. It also goes against what is typical statewide: people are buying established hotels, not building new ones.

"It's very expensive to build," said Alan Reay, the president of the Costa Mesa-based Atlas Hospitality Group, a brokerage and consulting firm that releases an annual statewide hotel -- development survey. Financing and a lack of available space have become hurdle s for hotel developers, he said when his latest survey results were released in February.

Moreover, existing hotels can maintain higher rates when fewer new properties are brought into the market.

A 300-room Sheraton Desert Cove Resort and a 106-room Hampton Inn & Suites are slated to be built within a mile of each other in downtown Cathedral City.

Adding 406 rooms to the more than 600 in the city could raise the city's profile -- and ignite a rate war between the existing hotels that already compete for a share of the Coachella Valley's touris m business.

"They're both going to add to what Cathedral City is doing to catch up with the rest of the valley," said Bijan Shahmoradi, the president of Tri-Millennium Properties, the developer behind the Hampton Inn & Suites as well as nearby city redevelopment plans.

Although tourist numbers have picked up recently, lenders are usually wary of the area's low occupancy rates -- about 61.4 percent in Palm Springs last year, according to Smith Travel Research -- as a less-than stellar guarantee that the property could make money during the summer off-season.

Some hotels, such as Beckley's Villa Motel in Cathedral City, close for the summer and reopen in the winter.

Bob Griffin, the president of Sterling Hotels, which owns the local Holiday Inn Express, said their occupancy numbers rarely falter in the off-season, only the rates do.

"We get them in the summer time when it's 118 degrees," Griffin said. "We just can't charge them what we do during spring break."

The city conducted a hospitality study of the area before moving forward with the Sheraton. The Sheraton will include a 10,000 -- square-foot conference room to attract group meetings.

The Hampton Inn & Suites will sit next to an IMAX theater and near new retail developments.

Reay said limited-service hotels such as the proposed Hampton Inn & Suites and the Holiday Inn Express have a better chance at success because their cost s are low and their rates are more attractive to travelers. Full-service resorts like the Sheraton Desert Cove Resort are more risky. The cost to operate them is higher, and the rates aren't as appealing.

Cathedral City's 285-room Doral Princess Desert Resort does strong weekend business, but the hotel and its 27-hole golf course can't offset lower weekday numbers, said general manager Elie Zod. The presence of the Sheraton may weaken the weekday revenue even more.

"It's going to create more of a competition," Zod said, "competition we could do without."

Ed Svitak, the president of the Palm Springs Hotel and Hospitality Association, said new hotel development is a logical step for a city that has made an aggressive push for more development, but said it could potentially lead to more hotels than the valley can sustain, especially when the Agua Caliente Band of Cahuilla Indians builds a Rancho Mirage resort near their casino.

"With all the development going on in town and in the area, it may be a situation where oversupply is coming into the picture rather quickly," Svitak said. "Eventually the new hotels in the market are going to start eroding the current market share."

The owner of the 29-room Desert Palms Inn, a Cathedral City hotel made famous in the 1963 movie "Palm Springs Weekend," expects the two new hotels to have a positive impact. Bill O'Connell gets regular referrals from other local hotels. When they're overbooked, they send visitors his way.

Shillcock said that the Sheraton would ideally send excess guests to the Hampton Inn.

"We're hoping that the problem we have is that the Sheraton has so many rooms demanded that we're going to be looking at the downtown hotel for overflow," he said.

EXISTING HOTELS

--The Villa Palm Springs: 40 rooms

--Travelodge: 44 rooms

--Beckley's Villa Hotel: 12 rooms

--Comfort Inn & Suites: 126 rooms

--Holiday Inn Express: 94 rooms

--Desert Palms Inn: 29 rooms

--Doral Desert Princess Resort: 285 rooms

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