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Hotel development is booming in California — maybe too much

Hotel development is booming in California — maybe too much
Carpenters work on the 51st floor of the Wilshire Grand Center in downtown Los Angeles in March. The skyscraper is to contain office space and hotel rooms. (Mel Melcon / Los Angeles Times)

California, like the rest of the country, is in the midst of a hotel building boom, with more than 17,000 rooms under construction and an additional 84,000 in the pipeline.

The surge in development follows a years-long drought in new hotels.

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Los Angeles County dominates in the number of rooms under construction, with 6,772 in 37 hotels, according to a report released by Orange County-based Atlas Hospitality Group, which tracks the hotel real estate sector.

The renewed interest in hotel development comes when industry revenue and room rates have begun eclipsing pre-recession highs and occupancies are on the upswing.

Although demand remains high, there is still the potential for overbuilding, Atlas President Alan Reay said.

"We have to be mindful of how many hotels are going to be constructed and can the market absorb all the new inventory, but if we look back in history, we can see we've gone through a number of booms and busts where we've added too many rooms," Reay said.

He expects that of the 563 hotels statewide now in the planning stage, just 20% will ultimately be built.

Partly driving the zeal for development, Reay said, are the escalating prices that existing hotels are commanding, which in some cases are higher than what it would cost to build the same properties. He said developers are tending to gravitate more toward mid-scale, limited-service hotels, which are less expensive to build.

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