June 20, 2010 --When the hip new h2hotel in Healdsburg opens for guests July 1, it will be a test of sorts.

Sonoma County's lodging sector -- along with the rest of the U.S. travel industry -- has endured a two-year slump. Most new hotel projects were shelved after the Wall Street crash of 2008, and several existing Sonoma County properties have ended up in bankruptcy or foreclosure.

Is h2's opening a sign that tourism is on the verge of a comeback?

Managing partner Merritt Sher is betting on it. "We hope we're part of what drives the market back," he said.

Sher knows something about the lodging business. He's the force behind Hotel Healdsburg, the four-star property anchored by a high-end spa and celebrity chef Charlie Palmer's Dry Creek Kitchen.

Hotel Healdsburg opened across from the town plaza in 2001, becoming the upscale centerpiece of Healdsburg's downtown tourist district. Other luxury accommodations followed, attracting Wine Country visitors willing to pay $400 a night.

Healdsburg Hotel and its new sister h2 are destinations, Sher said. "We look at it as an entertainment experience, rather than just a place to spend the night," he said.

Business was off about 10 percent last year at Hotel Healdsburg, but it's coming back. "We fared better than a lot of hotels in the downturn," said Circe Sher, Merritt Sher's daughter and an executive with the business.

Sher and his partners broke ground on h2 on the site of a former gas station in 2008, just before Wall Street's meltdown. The four-story, $19.5 million offshoot is a block away from Hotel Healdsburg, but a world away in terms of design.

The 36-room property features an undulating roof that's carpeted with live succulents, a solar heated pool and complimentary bicycles for do-it-yourself tours.

The industrial-chic interior has recycled wood, bamboo and polished concrete floors.

It's aimed at young, casual, eco-conscious travelers who don't want to shell out for a full-service luxury hotel, said Merritt Sher.

"We're trying to tap the contemporary sensibility," he said. Room rates at h2 range from $195 to $495 a night. At Hotel Healdsburg they range from $275 to $820.

It also provides an alternative when the 55-room Hotel Healdsburg is full, Sher said.

h2's restaurant, Spoonbar, will be headed by Rudy Mihal, former chef at Windsor's Odyssey. And cocktail wizard Scott Beattie, formerly of Healdsburg's Michelin-starred Cyrus, will tend the bar. h2 will employ a staff of 85.

So far, bookings for early July are strong, said Circe Sher.

h2's partners spent anxious months as the credit markets froze and the U.S. economy stalled. "Our banks were a little nervous," said Paolo Petrone, who has invested along with Sher, Charlie Palmer and John Holt, a former banker who helped save Healdsburg's Raven Theater.

Still, lenders stood by the project, he said.

After a pair of tough seasons, the outlook has improved for Sonoma County's visitor industry, said Ken Fischang, executive director of the county's Tourism Bureau.

"The last two years were probably the worst in the history of the hospitality industry across the country," he said.

This year's first quarter remained soft, but Sonoma County hotel managers reported a strong Memorial Day weekend, Fischang said. "Things are starting to pick up," he said. "It looks like we're going to have a good summer."

Each year, Sonoma County attracts more than 7 million visitors, who spend about $1.3 billion at hotels, restaurants, wineries and other attractions, according to the county's Economic Development Board.

The hospitality industry employs about 17,000 county residents.

In a board survey of county tourism businesses earlier this year, 70 percent said they're optimistic about 2010, compared to 44 percent who expressed confidence last year.

Sonoma County hotels reported 60 percent occupancy in April, up 3 percent from the same month last year, according to PKF Consulting, a San Francisco research firm that tracks the industry.

But hotels have been forced to slash their rates to attract business. During the first four months of 2010, rates are down more than 4 percent from the same period last year, PKF said.

The economic downturn has put new hotel projects and expansions on hold, according to Moody's.com, which tracks the county's lodging sector. "Hotel construction is practically nonexistent, and the market has added an insignificant number of new rooms over the past year," Moody's said.

h2 is the first new hotel since fall of 2008, when Hampton Inn and Suites opened in Windsor.

That puts h2 in a good position when the market returns, Merritt Sher said.

"We are a two-hour drive from the most affluent market in the country," he said. "The market is there. We just need to capture our share of it."

You can reach Staff Writer Steve Hart at 521-5205 or [email protected].

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