March 19, 2009 - Hotel developers who began building their destinations a few years ago, expecting rising nightly room rates to fuel an industry boom, instead opened their doors to a bust last year.

The 340-room Agua Caliente Casino Resort Spa in Rancho Mirage opened in April and the 136-room hotel in Rancho Cucamonga opened in June as the economy showed signs of slowing. In the two-county region, 16 hotels with 1,777 rooms opened last year.

Every county in Southern California added hotels and rooms last year, according to an annual report from Irvine-based hotel research and brokerage firm Atlas Hospitality Group.

Hotels have since seen revenues fall as more travelers take a second look at their budgets. Business travel has also been stymied as businesses cut back and corporations who accepted bailout funds are publicly shamed for taking unnecessary trips.

"There is probably no worse time for California to have a record number of new hotel rooms entering the market," Alan Reay, Atlas Hospitality's president, wrote.

Occupancy rates in Riverside County dropped to 57.5 percent in 2008 from 63.1 percent in 2007, according to hotel statistics firm Smith Travel Research. The company tracked about 242 properties and 22,508 rooms in Riverside County as of December.

Of 256 hotels with 18,103 rooms in San Bernardino County, hotel occupancy slipped to 59.8 percent from 65.3 percent in 2007.

"A big question mark over these new hotels is how many of them will survive and remain in the hands of the developer and how many will ultimately go back to their lenders," Reay wrote.

Reay said 20 hotels in the state have been foreclosed on since 2008. Another 70 have received notices of default.

"The last time we saw levels of notice of default like that was back in the early '90s," he said by phone.

Hotels that count on the revenue they earn per available room, based on the average daily rate and how many rooms are occupied, have seen it drop precipitously.

Of the 27 hotel markets in California, Ontario fared the worst, with revenue per available room dropping 28.7 percent in January compared to the same month a year prior, Reay said.

"It does not bode well for Ontario," he said. "This is a serious situation. All hotels are down, it just depends on the degree in which they're down."

Nonetheless, Damon Schleichert, general manager of Hotel Indigo, which opened in Ontario last July, said the 92-room hotel has managed to stay stable largely because of its size -- fewer rooms to fill than nearby competitors -- and by reaching out to travel agents and online travel booking engines.

Most of the hotels that had been under construction in California since 2006 were opened last year, bringing 10,286 rooms, an 81 percent annual increase.

The two-county region still has many more hotels in the planning stages -- 57 in Riverside County (with 12,489 rooms) and 35 in San Bernardino County (3,247 rooms).

Historically, 10 percent of those projects in planning phases eventually get built, Reay said. He said he expects less than 1 percent to be built now.

The Ritz-Carlton Rancho Mirage was set to open last year until Lehman Brothers, their primary lender, went under in September. Construction on the $600 million hotel with 242 rooms and 118 residences has since stalled.

Statewide, there are more than 12,000 rooms under construction that could open in 2009, according to the report.

Reach Kimberly Pierceall at 951-368-9552 or [email protected]

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