Hotel Plans Bet on Steady Influx of Big Corporations

George Anthony is a betting man. He came up a winner 16 years ago when he plunked down $2.8 million to build the El Dorado Card Club in Gardena. He still can be found there almost every morning, counting poker chips in his wood-paneled office or strolling among the green felt tables.

Now he is trying to buy into a different kind of action. By the end of 1986, Anthony plans to open a $22-million luxury hotel at his card club, hoping to tap the market created by one of Southern California’s most rapidly expanding office and high-technology centers.

Less than two miles away, near the junction of the Harbor and San Diego freeways, the big corporations have been moving in--Nissan, TRW, Toyota, Pacific Bell, Mitsubishi Electronics, Texas Instruments, Bridgestone Tire and American Honda, among others. Across an expanse of nearly three square miles, the sprawling glass-and-steel skyline is being touted by some city officials as the next Century City.

Anthony has spent six years and, by his own account, more than $700,000 planning for his hotel, which would cater largely to corporate business travelers. At the same time, however, other hotel builders are also striving for a stake in the corporate market--and the resulting competition may create as many losers as winners, according to some hotel-marketing analysts.

Too Many Rooms?

Within a two-mile radius of the freeway interchange, six new hotels are being planned to serve the burgeoning corporate complex, where not a single hotel currently exists. The projects, totaling $114 million in expected construction costs, would result in at least 1,400 hotel rooms by late 1986, in an area that some analysts say will support fewer than half that number.

“The likelihood of all six being built is probably very, very low,” said Jim Burba, a Los Angeles manager for Pannell Kerr Forster, an international accounting firm that specializes in hotel marketing studies. Burba predicted that the market will support no more than two or three of the projects--a level of demand that may make it impossible for all of the projects to acquire financing.

Other marketing specialists are not so sure. Teri Eve, for example, a consultant with the rival international accounting firm of Laventhol and Horwath, said there are a “million factors” that may determine whether all the hotels can succeed, including the ultimate size of the expanding office park and the growth of the business and hotel markets throughout the South Bay.

“The area can support hotel development,” she said. “How many, and which ones, who knows?”

Hilton, Holiday Inn

Projects planned for the area:

A 253-room, $22-million hotel that Anthony would develop at Vermont Avenue and Redondo Beach Boulevard in Gardena.

A 248-room, $22-million Hilton Hotel in Carson, which is scheduled for reconsideration by the City Council on Monday after more than two years of financing delays.

A 341-room, $28-million Holiday Inn in Los Angeles near the heart of the growing corporate complex.

A 260-room, $20-million to $25-million hotel to be developed by Ferrante-Walder Co. at the northeast corner of the corporate complex in Los Angeles.

A 250- to 300-room, $20-million to $30-million Cadillac Fairview hotel in Los Angeles at the center of the complex on 190th Street, less than a mile from the Holiday Inn and Ferrante-Walder projects.

A 102-room, $3-million hotel in Torrance, to be built by an independent developer just across the Los Angeles city boundary at the edge of the corporate complex.

Like most of the would-be builders, Anthony is gambling on his belief in a rapidly growing, rapidly changing area. He, like others, expresses confidence that his own project will be one of those that succeeds. Corporate growth, the lure of Gardena clubs and restaurants and the accessibility of freeways will help assure his success, he said.

A Business ‘Empire’

Anthony points to the 22 banks that line nearby Redondo Beach Boulevard as evidence of the big money that has moved to the area--money he believes can be tapped. “Those (banks) show the foundation of the (business) empire here. We’re in a hub, like the spokes of a wheel here, with the Harbor Freeway, the Artesia Freeway, the San Diego Freeway.”

The area is less than a 20-minute drive from downtown Los Angeles, the harbor and Los Angeles International Airport, he said.

At the same time, he acknowledges the risks. “I could lose,” he said. “I don’t think so . . . but it could happen.”

Indeed, the seeds of concern are already well planted in Gardena and, in particular, in Carson, where the hotels are regarded as important new sources of revenue and civic pride. In each case, projects have been delayed for more than two years, enabling the three newer proposals in Los Angeles to gain an inside track in the race for the market.

The three Los Angeles hotels, to be built in the heart of the corporate complex, would be developed in conjunction with large new office projects in ventures that would bring in powerful financial backing. The $28-million Holiday Inn, for example, is to be paid for entirely by the international hotel chain. It is expected to draw from an adjoining 65-acre, 700,000-square-foot office park now being built near the eastern edge of the corporate complex by Cabot, Cabot & Forbes, a company that is selling the five-acre hotel site to Holiday Inn.

Threat of Room Glut

“My marketing people are aware of . . . the various other (hotel) projects,” said C. Wilson Viar Jr., vice president of Holiday Inn’s western United States region. “(But) we’re just going to go ahead and develop ours.”

Those hotels that are first in the area will fill an enormous demand for hotel rooms, restaurants and meeting rooms, according to most market analysts and civic leaders. But at some point, other projects may fail to get financing if marketing studies convince lenders that there is a glut of hotel rooms.

In some cases, developers may be lucky enough to find sympathetic lenders, who perhaps have faith in the area’s growth, market analyst Burba said. Other builders may be required by lenders to redo out-of-date marketing studies--a step that could substantially reduce their chances for funding.

“If project A is breaking ground and project B is sitting in a loan committee . . . project A may knock out project B,” Burba said. “A lot of lenders will have their own appraisal departments that will take a feasibility study and tear apart every line and number. There are tremendous degrees of sophistication out there.”

Lack of Financing

After six years and three market studies--the latest done two years ago--Gardena’s project, like Carson’s, is now at a turning point. The project has faltered twice for lack of financing, even though Anthony’s card club is considered a financially strong operation that contributes heavily to the city’s yearly gambling revenues, said Assistant City Manager Ken Landau. (The city’s three card clubs produce a combined average of about $170,000 a month in city revenues, Finance Director Keith Bennett said.)

Gardena officials, who expect the hotel to generate more than $500,000 in yearly tax revenues, are now pinning much of their hope on a $3.5-million federal Urban Development Action Grant that would serve as a catalyst for private financing. Such a grant, established to help cities foster commercial development, would be lent to Anthony and later repaid to the city, providing an impetus to construction without putting city money at risk, according to City Manager Marty Reagan.

In spite of fears that federal budget cuts may make the grant unavailable, Gardena officials are hoping to receive federal approval of the grant by spring or summer.

‘Very Important’ to City

“This (hotel) is very important,” Reagan said. “Not only would it contribute substantially to our revenues, but it would be a steppingstone to other development.”

Assistant City Manager Landau said the project would be the city’s first hotel, creating several hundred new jobs and pumping about $1 million a year into the Gardena economy. In addition, it would help create business at a proposed mall now being considered for vacant land at Vermont Avenue and Artesia Boulevard--about a mile from the hotel site.

“We’re trying to upgrade our image,” Landau said. “We feel a first-class luxury hotel would do that, especially at a key cornerstone of our city.”

Although similar hopes have been held for the proposed Carson Hilton, that project has been mired in a series of financing problems under the Feinberg Group, a franchise operator that runs the Queensway Hilton in Long Beach. Unlike the proposed Holiday Inn project in Los Angeles, the Carson Hilton would be a franchise operation and has not had the financial support of the corporate chain from which the hotel would take its name.

Carson Purchased Site

A year ago, anxious to spur action on the project, the Carson City Council agreed to spend $4.2 million to purchase the 6.3-acre project site, then to resell it to the Feinberg Group in a complex financing arrangement that was to include a $2-million construction loan. In November, however, more than four months after the hotel’s originally planned opening date, the Feinberg Group failed to exercise its option on the deal, leaving the city with an expensive land investment and nothing else.

Although the developers now say they have found financing, the troubled history of the project has created consternation among City Council members. Enthusiasm for a hotel has been tempered by growing uncertainty over the Feinberg Group and concern over the regional hotel market. At a recent meeting, council members even considered plans for a car dealership on the site before voting to accept new hotel proposals from any and all developers--including the Feinberg Group.

Those proposals are to be considered Monday by the council.

“We’re all unanimous in wanting a quality hotel for our city--no question about it,” said Councilwoman Vera Robles DeWitt. “(But) I want to see a good deal for the city. We can’t have blinders on just because we want a hotel.”

Financing Hotels Risky

J. Jay Feinberg, vice president of the Feinberg Group, blamed the company’s financing problems on the perceived risks of building a hotel. Although hotels often generate enormous tax income--Carson’s yearly revenue from the proposed hotel is expected to top $450,000--few lenders consider them safe financial investments.

“With other kinds of real estate--shopping centers, warehouses or office buildings--you generally have leases,” Feinberg said. Those leases, to the tenants who occupy the developments, assure a steady stream of income. Hotels, by contrast, are much more dependent on “the skill of management, the location . . . the personnel, the interior design . . . and other intangibles,” Feinberg said.

Even with assurances that the project now has funding, some city officials remain skeptical because previous financing commitments have collapsed.

“We should have broken ground last September,” DeWitt said. Her fear is that the market may now be approaching a saturation point. “We want a hotel, but if the market can’t support it . . . I’m concerned.”

Torrance Hotel Prospects

Torrance developer Ming Huang is similarly concerned about his 102-room, $3-million project. Having spent three years planning it--at a cost he refuses to reveal--Huang now owns a 1.5-acre site, at Western Avenue and 208th Street, and a city-approved conditional-use permit to build his three-story structure. He needs only to sign the final loan papers and to pass plan reviews before he can break ground, Huang said.

And yet the former Torrance AIResearch engineer is now looking over his shoulder--and across city boundaries--to the bigger projects in Los Angeles. Like Anthony, whose last market study was done in 1983, and Feinberg, whose latest was completed in 1984, Huang is seeing his project threatened by proposals that have emerged within little more than a year.

Late last year, he learned about two other proposals while reading a local newspaper. The other three came to his attention only a few days ago. He said he is not sure about his chances.

“I don’t know. I’ve spent a lot of money,” he said. “I’m a little bit worried, actually.”

Other Developers Confident

Developers of the three Los Angeles projects express none of the same fears.

“We really don’t see any hurdles,” said Jules Walder, president and co-owner of the Ferrante/Walder Co., which is planning a 260-room, $20-million to $25-million hotel on 190th Street adjacent to the Harbor Freeway. His company is planning to combine the hotel with an extensive new office park, drawing on financing sources developed for previous projects.

Although the project has yet to receive zoning approval, Walder said that the hotel, proposed a year ago, is expected to be built by late 1986. He described funding as “99% certain” and said he is unconcerned about other possible projects.

“What usually happens is some fall by the wayside,” Walder said. “We’re definitely committed to going ahead. We look at this as an area of unlimited potential.”

Martin Seaton, president of the Cadillac Fairview Corp., expressed similar sentiments for his project--a 250- to 300-room hotel that is also being designed as part of an extensive office park. Ultimately, that park--now about 40% complete--will contain more than 5 million square feet of office space, Seaton said. By mid-1986, the hotel will provide badly needed lodging for corporate visitors, he said.

Zoning Changes Required

“Our project will go forward,” Seaton said. “We didn’t spend time worrying about the others in the area.”

Because they would be built on industrial land, the three Los Angeles developers would have to acquire zoning changes before beginning construction.

When Cadillac Fairview became the first of the three developers to request a zoning change late last year, hearing examiner Jon Perica recommended that the request be denied to help preserve the city’s diminishing supply of industrial land. But the five-member Planning Commission, and later the City Council’s three-member Planning Committee, both approved the request, auguring well for all three proposals.

The committee action, taken last week, will enable the full council to act on the Cadillac Fairview request by April or May, said Ann D’Amato, a planning aide to 15th District Councilwoman Joan Milke Flores. D’Amato said the heavy demand for new hotels and restaurants has overshadowed concern about the city’s shrinking industrial acreage.

“We’re trying to expedite it for them,” she said of the Cadillac Fairview project. “We’re supporting all three projects.”

Potential Customers

Despite what most consider a ready-made hotel market, the character of surrounding cities makes it difficult to calculate the area’s ultimate lodging demand, according to some analysts and leasing agents. The Carson Hilton, for example, is expected to draw from a sizable new civic center complex. The Torrance and Gardena hotels expect to cater to large numbers of visiting Japanese businessmen and tourists in those cities, their developers say.

All agree that the corporate complex will grow, but by how much--and how fast--is difficult to gauge. Leasing agents are still trying to fill 760,000 square feet of new office space completed in 1984, and their success may speak for the future of the complex, said Coldwell Banker sales consultant Mike Condon.

About 25% of that space is filled and another 25% is under negotiation, he said. By the end of 1986, an additional 400,000 square feet of office space is scheduled to open.

“I don’t think it’s 25% developed,” Condon said of the complex.

Pete Toughill, a Grubb & Ellis broker, said much of the area’s corporate growth may arrive too late to support the hotels that are being planned. “If six are being proposed, maybe three will make it,” he said. “A lot depends on who gets there the quickest.”