Hyatt Profit Bodes Well for Long Beach Hotel Industry
In what some are calling a positive sign for the burgeoning hotel industry here, the 2-year-old Hyatt Regency posted a profit of more than $500,000 last year, a significant turnaround after recording a $2-million loss in 1983.
Market analysts and hotel developers see the Hyatt’s performance as an indication that Long Beach’s hotel and convention trade is, for now, on the right track.
Several luxury hotels along the city’s downtown shoreline are currently proposed, with more than 3,500 new hotel rooms expected by 1990. Some developers view the performance of the Hyatt Regency, the first major resort hotel built downtown, as a key indicator of the industry’s future in Long Beach.
“Generally, I would say the Hyatt’s performance has been positive,” said Stan Cohen, developer of a planned 500-room Sheraton hotel in downtown. “You always want to take a look at what goes before you. What the Hyatt has done has been sufficiently encouraging to justify the kind of project I’m talking about.”
Five Major Projects
Besides Cohen’s project, four other major new hotels or hotel additions are planned in the city, including the 380-room Ramada Renaissance and a 42-story addition on the Queensway Bay Hilton.
“Having the hotel turn around and make a profit after its first year of operation is pretty good,” said Bruce Baltin, a partner at Pannell, Kerr, Forster, a Houston-based consulting firm that deals with the hotel industry.
Baltin said hotels generally take at least three years to turn a profit. And since the Hyatt was “pioneering a new market,” the hotel was expected by some to take even longer to start making money, he said.
The Hyatt’s performance came to light in a Feb. 20 city auditor’s report reviewed by the City Council last Tuesday. The 13-page document showed the Hyatt lost $2.1 million during seven months of operation in 1983, but earned more than $561,000 last year. The 531-room hotel opened in June, 1983.
“We’re exceeding all projections for the hotel,” said Linda O’Toole, general manager of the Hyatt Regency. “The hotel is doing very well.”
Still, City Auditor Robert Fronke criticized the city administration for overestimating the revenue it projected would flow into the city coffers from the hotel. All revenue from the hotel and other projects in the shoreline area go into the separate operating fund of the Tidelands Agency, a city department that oversees shoreline development.
‘Too Optimistic’
“Amounts projected by the city as its expected revenue from the hotel operations under the contract have been consistently too optimistic,” Fronke wrote.
City officials estimated the Hyatt would return $5.5 million in rent to the city during fiscal 1984 and 1985, but Fronke said the hotel would likely pay only $1.9 million, about 35% of the amount originally projected.
Tideland Agency officials could not be reached for comment on what effect the reduced payments will have. The Hyatt Corp. is leasing the hotel site from the city, but under terms of the agreement the payments can be deferred. The hotel must pay 10% annual interest on what it still owes.
Despite the Hyatt’s turnaround, Baltin and others raised the possibility that the city’s hotel market could become saturated as new projects are built.
“There’s a lot of people with hotel projects down there,” Baltin said. “Any city can get overbuilt.”
O’Toole agreed the city could eventually be saddled with a glut of hotel rooms, a problem she called “worrisome.”
“There’s a real concern in the hotel community about the additional rooms targeted for the city,” O’Toole said. “I think Long Beach is an excellent market, but like everything else we have to make sure there’s a balance.”
Support Industries Needed
O’Toole said an important factor will be the city’s ability in the future to provide “support industries,” such as adequate convention space and transportation systems to nearby airports and tourist attractions. The city’s Tidelands Agency is conducting a study to determine the feasibility of expanding the Long Beach Convention Center.
Jay Feinberg, board chairman of the Long Beach Convention and Visitors Council, said he feels the hotel building boom will be paralleled by an expansion of the market for hotel rooms. That boost in customers, Feinberg said, is likely because new businesses are moving to the area to be near the ports of Long Beach and Los Angeles.
“With the growth of the two port areas, it’s just going to continue to bring more businesses here,” Feinberg said.
In an interview Thursday, Fronke agreed the Hyatt’s performance is exceeding expectations but said the inaccurate estimates of revenue from the hotel could create a problem for the city’s Tidelands Agency.
“If you compared it to someone getting a salary, it’s like all of a sudden one paycheck that’s 35% of what you expected,” Fronke said. “You end up with some problems.”
But Fronke said the city eventually will begin to see a marked boost in revenues as the hotel begins to show increasing profits.
“We think that in the long run the city will do well with that lease,” Fronke said.
