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During Downturn San Diego Hotel Owners Face a Delicate Balancing Act
 in Calculating When and How Much to Invest in Restorations

By Lori Weisberg, The San Diego Union-TribuneMcClatchy-Tribune Regional News

Apr. 11--When the general manager of the 56-year-old Handlery Hotel started seeing online reviews blasting the Mission Valley property as little more than a glorified motel, he knew the time had come for a major redo.

Competing Mission Valley hotels were already undergoing upgrades, while the Handlery's business continued to slip. By late 2008, the ownership decided it, too, would invest in a long overdue makeover.

Now, after a nearly $4 million, three-month-long renovation of the 217 rooms, pool area and meeting space, the family-owned hotel is seeing more complimentary feedback, as well as an increase in bookings.

"We were really the last hotel to renovate in Mission Valley, and we were losing market share," General manager Pete Lassalette said. "If we hadn't done it, we would have had to close because we couldn't compete."

Despite a battered economy that has forced consumers and corporations alike to sharply trim travel spending, hotels say there's no time like the present to keep up with the Sheratons, Hiltons and Marriotts. In San Diego, a number of properties, from the 44-acre Paradise Point Resort & Spa on Mission Bay to the boutique Porto Vista Hotel in Little Italy, have recently completed renovations they say are critical to remaining profitable in an increasingly competitive environment.

The San Diego Marriott Hotel & Marina is in the midst of a $51 million makeover of its 1,362 guest rooms and suites, and the Sheraton San Diego Hotel & Marina on Harbor Island last year completed a phased, $35 million renovation of its 1,000 rooms and 53 luxury suites. The Westin Gaslamp is in the early design stage of a planned redo, and owners of the 64-year-old Lafayette Hotel will soon launch a $4 million project to restore and modernize the North Park hotel.

In some cases, hotel owners decided to delay scheduled improvements because of declining revenue that forced them to conserve money for operating expenses. But even in troubled times, hoteliers can ill afford to postpone for too long needed face-lifts, analysts say. While high-thread-count linens, a fresh coat of paint and new carpeting can go a long way toward refreshing tired rooms, there's nothing like a major redesign to win over guests and keep them coming back.

"It makes sense to put money into your hotel when you're slow so you're not disrupting things, but the real reason you do it is because it's a competitive market," said Jeff Lugosi, senior vice president of PKF Consulting. "You're building loyal customers, so if you take care of your customers during the down time they'll come back to you in good times. If the owners don't free up money and be proactive, they'll see they're lagging in (revenue) when the market turns."

The Paradise Point Resort & Spa was ready two years ago to launch a major upgrade of its 462 bungalow-style guest rooms after seeing rival Mission Bay hotels complete their renovations. It had even designed two model guest rooms to reflect the new, updated look. But then the economy tumbled into the deepest recession since the Great Depression, forcing the hotel's owners to postpone its $8 million project.

Three years earlier when corporate travel was much more robust, the hotel had spent $12 million transforming its industrial-looking meeting space into a warm, inviting convention center with high ceilings and teak insets, custom lighting and modern, Asian- and Indonesian-inspired art and design touches.

Ultimately, the resort, owned by Maryland-based LaSalle Hotel Properties, proceeded with the renovation, transforming the former nautical-style, Cape Cod-like rooms into a more tropical decor, with leopard-patterned rugs; contemporary South Pacific-style teak, mahogany and kapur furnishings; custom-made Batik bed throws; and plank ceramic tile flooring.

"It really comes down to the fact the market has changed completely," hotel manager Pat Rizco said. "We used to compete with people who just came to Mission Bay, and now we're competing with people going downtown or to Orange County. And high-end properties are willing to lower their rates. Everyone is selling a hotel room, and you have to give the guest a reason to come."

Although the hospitality industry is forecast to show some very modest improvement this year, it will be some time before it will be able to fully recover from the continued slump in leisure and group meeting business. In San Diego County, occupancies were down 9 percent last year, but revenue per available room, the standard industry barometer of a hotel's financial health, plummeted more than 20 percent, according to Smith Travel Research.

As tempting as it is to put off sizable investments during troubled financial times, San Diego hotel owner Richard Bartell said to do so would mean risking a loss in business now and in the future. In just the last three years, his company, which owns seven hotels, including Humphreys Half Moon Inn & Suites, the Holiday Inn Bayside and the Sheraton La Jolla, has spent roughly $6 million on redesigns.

Like many hotel owners and operators, Bartell is replacing bulky armoires that were used to contain televisions with more modern furnishings for displaying large, flat-screen TVs. He's spent roughly $1,000 apiece for 800 new flat-panel televisions.

"It becomes difficult to bring the business back once guests have left, so the key is to keep them happy while they are there," Bartell said. "We've been around for 34 years, and we're going to be around for another 35 years, so we felt we needed to renovate during good times and bad times and so we went ahead with aggressive renovation at several of our hotels."

With the rise in social media and the popularity of online sites such as, which logs more than 32 million visitors a month, customer reviews can make or break a hotel's reputation, forcing the lodging industry to pay even closer to attention to what guests are saying.

Before launching renovations at the Handlery and Paradise Point, online brickbats, such as "dated motor hotel" and "dark, dingy, old, tattered" rooms were not uncommon.

"I talked to someone the other day who said if we get a bad write-up all the money we spent last year could be for nothing," said Lugosi of PKF. "So it's hugely important. The transparency in the market today is both good and bad. It's important because people shop that way and look at the reviews."

While major chains such as Starwood Hotels regularly put money into a capital reserve account for major improvements, such plans quickly go awry when an owner decides to walk away from a property after defaulting on inflated debt. That was the case with the tony W Hotel in downtown San Diego, formerly owned by San Clemente-based Sunstone Hotels and now overseen by a receiver.

A $6.5 million renovation of the 258-room hotel had been planned for last year, but it was put on hold after Sunstone defaulted last summer on a $65 million loan. Still, General Manager Stan Kaminski and his staff have been creative in their efforts to infuse the hotel's public spaces with new upholstery, tabletop, artwork, paint and draperies.

"A lot of the staff comes from a long background in hotels, and we all kind of brainstormed and put together the color palette ourselves," Kaminski said. "It sounds kind of hokey, but it's the truth. We also don't cut corners when it comes to property maintenance and property cleanliness. We have a refresh and renew program we actively manage to make sure the rooms are clean and carpet is changed out."

While Sunstone President Arthur Buser would not discuss the hotels that the real estate investment trust owns in San Diego, he acknowledged that owners face a delicate balancing act in calculating when and how much to invest in hotel restorations.

"It's a math problem: Over-invest and you do not get a return on your investment," Buser said. "The opposite is also true. It's about knowing what is important to the customer. A hotel wears out a little bit every day, and as savvy companies have been restricting their capital expenditures in the nadir of the economy, that trend will change."

Lori Weisberg: (619) 293-2251;


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