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San Diego in midst of hotel building boom

San Diego in midst of hotel building boom
The topping-off ceremony for the InterContinental San Diego, located on the former Lane Field, where the San Diego Padres played between 1936-1957. The hotel is located at the corner pf Pacific Highway and Broadway. (Howard Lipin / Howard Lipin/The San Diego Union)

In the span of a year, the number of hotel rooms under construction in San Diego County doubled, outpacing all other counties in Southern California.

New year-end figures released by Orange County-based Atlas Hospitality Group document a continued building boom up and down the state, with a record 10,793 hotel rooms that opened in California in 2017 and 125,749 more still in the planning stage.

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What is less clear is how many of those hotel projects will move forward and whether the pace of development can be sustained well into the future.

Atlas CEO Alan Reay, who admits to being a little surprised by the robust pace of growth, remains bullish on development into this year and next.

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"I would have anticipated a little more caution, both from developers and banks but the opposite has happened," he said. "It's amazing to see the amount of development going on. It seems a day doesn't go by where you don't hear about the impact of Airbnb and yet the demand for hotels is still very strong."

In San Diego County, there are 2,823 rooms under construction, second only to Los Angeles, with 5,327, Atlas reports. For San Diego, that's a doubling of the 1,444 rooms that were being constructed in 2016.

Far fewer hotel rooms — 826 — opened last year in the county, but that's likely to change this year, given the large number of properties expected to come on line. The largest is the 400-room InterContinental, rising on the downtown waterfront, which should open by September.

In addition, three of San Diego's casinos — Sycuan, Pala and Viejas — all have hotel projects under construction for a total of 808 rooms, although not all are opening this year.

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Considering the strong growth in lodging industry revenues, hotel demand still appears to be strong, says Derek White, an executive with Atlanta-based Portman Holdings, part of the development team that is building the InterContinental.

"What everybody is wondering is whether there are there more innings to this lodging cycle," said White. "We're confident in San Diego, and I think that of all the cycles, there's more discipline in this cycle on the part of lenders and the developers than previous cycles."

One of San Diego's most anticipated hotel projects, a 153-room Ritz Carlton planned for downtown, remains on hold because of litigation against the city challenging the approval of the project, which also includes a Whole Foods grocery store and office building. The city prevailed in a lower court ruling, but the case has been appealed by San Diegans for Responsible Planning, which includes hotel union workers.

Statewide, there were 145 hotels with 20,693 rooms under construction by the end of last year, a 17 percent room count increase over 2016, according to Atlas. Reay cites a number of factors for the growth, among them access to long‐term financing at attractive interest rates, continued revenue growth, and strong interest from overseas investors, most notably China.

"As long as the economy continues at the pace that it's at and the meetings and convention business continues to be strong, San Diego should be able to absorb new development with no declines in room revenue," Reay said.

Encinitas-based hotel developer Robert Green currently has more than 1,700 hotel rooms in development or in construction in California, and last year opened the 317-room Pendry Hotel in the Gaslamp Quarter. Among the higher profile projects he is working on is a $300 million hotel complex planned for San Diego's downtown bayfront, a site also being eyed for an expansion of the convention center.

Green believes there is still demand for new hotels, but only in certain markets.

"I wouldn't pursue a hotel in downtown Los Angeles because I think there's way too much development there, but there's plenty of room, for example, for the kinds of hotels we're doing in Mountain View in the Silicon Valley, which is a very strong market with very little product, Green said. "We think downtown San Diego is still a good market, but I wouldn't build a project there just anywhere."

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10 largest hotels under construction in San Diego County

HOTEL CITY ROOMS
HOTELInterContinental San Diego Lane Field CITYSan Diego ROOMS400
HOTELPala Casino Hotel Tower CITYPala ROOMS349
HOTELSycuan Casino Hotel CITYEl Cajon ROOMS300
HOTELLegoland Castle Hotel CITYCarlsbad ROOMS250
HOTELCarte Hotel San Diego CITYSan Diego ROOMS240
HOTELHampton Inn & Suites San Diego Liberty Station CITYSan Diego ROOMS181
HOTELViejas Casino & Resort Tower 3 CITYAlpine ROOMS159
HOTELAyres Hotel Otay Ranch CITYChula Vista ROOMS135
HOTELCourtyard El Cajon CITYEl Cajon ROOMS120
HOTELTownePlace Suites San Diego Central CITYSan Diego ROOMS108

Source: Atlas Hospitality Group

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Twitter: @loriweisberg

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