Ritz-Carlton Spawns Upscale Hotel Boom in Orange County

<i> Times Staff Writer</i>

Not too long ago, vacationing in Orange County meant packing the kids into the station wagon for a trip to Disneyland, the beach and maybe a couple of nights in a local motel.

Plenty of young families still make that legendary pilgrimage. But others with a taste for the high life--and the cash to indulge it--are discovering that Orange County tourism has gone upscale.

In 1984, when the Ritz-Carlton hotel opened on a stretch of oceanfront property that is now part of Dana Point, some hotel experts predicted that the luxurious 391-room hotel would never make money. For one thing, it seemed out of character with Southern California. (At first, the hotel required men to wear jackets after sunset; it still requires jackets and ties in the dining room.)

Today, the Ritz-Carlton says it is operating at a profit, and, by all accounts, it is a success. It has since been joined by the 350-room Dana Point Resort, which is more modest than the Ritz but nevertheless an upscale establishment on a bluff overlooking Dana Point Harbor.


Now other developers, eager to tap the market for well-heeled travelers, have cleared a variety of environmental hurdles and are planning three giant developments that will forever change stretches of the Orange County coastline.

Within the next four years, nearly 5,000 additional resort hotel rooms will be built along the coast from Huntington Beach to Dana Point. The construction promises to transform the coastline into an area that the tourism industry, with characteristic boosterism, claims will one day be known around the world as the Orange Coast Riviera.

In April, construction is scheduled to begin on a four-hotel 1,450-room development on 20 acres along Pacific Coast Highway in Huntington Beach called the Waterfront.

In May, construction will begin on the Monarch Beach Resort, a $300-million, 1,126-room extravaganza located on one of the last untouched strips of land along Coast Highway, just north of the Ritz-Carlton in Dana Point. The ocean bluff project is a joint venture of Stein-Brief Inc., and the Hemmeter Corp., famous for its elaborate Hawaiian resorts. They are spending nearly $20 million on landscaping alone for the development.


Unfazed by Slump

And by 1990, the Irvine Co. plans to begin construction on the first of three hotels with a total of 2,150 rooms and two 18-hole golf courses on one of the choicest pieces of real estate in Southern California, a three-mile strip of rolling hills between Laguna Beach and Corona Del Mar called the Irvine Coast.

Despite a general slump in the Orange County hotel market, developers are confident that there will be enough tourists to back up this unprecedented building spree. Some assert that demand for these huge seaside resorts has gone unmet for years. Others say that even if adequate demand does not yet exist, it can be created with savvy marketing.

“Resort development is hot across the country. People are taking more vacations. Travel is up, and more foreigners are coming here,” said James Burba of Pannell Kerr Forster, a consulting firm serving the hotel industry.

“The Ritz opened everyone’s mind to the idea that here is a real resort area,” said Sherrie Laveroni, general manager of the Dana Point Resort.

The Ritz-Carlton, jointly owned by Prudential Insurance Co. of America and Atlanta-based W. B. Properties, Inc., billed itself as the first major resort built along the Southern California coast in nearly 30 years.

Besides its seaside locale, the $100-million project boasts tennis courts, swimming pools, meticulous service and a collection of 18th Century art on its walls. The hotel has won five stars--the highest award--from both the Mobil Travel Guide and the American Automobile Assn., two of the more prestigious honors in the U.S. travel industry.

Its look and feel have been compared to opulent turn-of-the-century seaside resorts. But its rates are definitely modern, with rooms starting at $185 a night and going up to $2,000 for a five-bedroom suite with a baby grand piano.


Developments Mushrooming

After a rocky first year marked by a protracted battle with creditors, which was eventually settled, the Ritz-Carlton became profitable by 1986. According to general manager Henry E. Schielein, the hotel’s occupancy rate in 1988 was well above the Orange County average of 69%, and its revenue was between $45 million and $50 million.

Room rates at the Dana Point Resort range from $160 to $1,050 per night, Laveroni said. The hotel, owned by Ed and Tom Slatkin (sons of Burton Slatkin, the former owner of Beverly Hills Hotel), claimed a 50% occupancy rate in 1988.

Since the Ritz-Carlton opened in 1984, coastal hotel development has progressed at a good clip from Santa Barbara to San Diego, according to numbers recently compiled by Laventhol & Horwath, the accounting and consulting firm. In 1985, there were only 13 “upscale water-oriented hotels” along the Southern California coast, with 4,500 rooms. By 1988, there were 21 such hotels with 7,500 rooms.

In Los Angeles County, several new seaside resorts are under consideration along the Palos Verdes coastline, including another Ritz-Carlton hotel about two miles south of the former Marineland aquatic park site. In northern San Diego County, developers expect to complete 1,500 new rooms in 1989 from Del Mar to Oceanside, according to the San Diego Convention and Visitors Bureau.

But local developers assert that the strip of resorts along the Orange County coast will be more distinctive, more elaborate and more luxurious than the competition.

Their intention is to turn the area into a tourist destination in itself, not just a place to recuperate from day trips to Disneyland, Sea World or Knott’s Berry Farm. These resorts don’t plan to compete with nearby inland lodges or with other seaside hotels, but with resorts in Hawaii, Palm Springs, Scottsdale, Ariz., and, yes, even Monte Carlo.

Can Orange County--once considered a byword for provincialism in some circles--draw the same well-heeled travelers who patronize resorts like Palm Springs?


Aura of Sophistication

Industry experts say the jury is still out. A lot depends on whether the new hotels scheduled for construction live up to their billing and are snazzy enough to complement the Ritz-Carlton.

According to general manager Schielein, the Ritz-Carlton’s reputation is drawing a steady stream of vacationers from Europe and Japan.

But while the upper-crust, international flavor of the Ritz-Carlton has provided an aura of sophistication to the Orange County resort concept, its potential primarily reflects economic and demographic growth within the greater Los Angeles area, industry experts said.

Schielein, in fact, acknowledged that virtually all of the Ritz-Carlton’s weekend guests are Californians. Of those who sign on for longer stays, most hail from California or other Western states.

“The Orange County coast’s greatest asset is that it is adjacent to a nearly 14-million-person market in Southern California, and the Northern California market is certainly available to it,” said Sam L. Van Landingham, a partner with Portman Properties, a Atlanta development firm that has built posh hotels from New York to San Francisco and the Far East.

“Clearly the success of the Ritz-Carlton is supported primarily by Southern California. And a larger critical mass of hotels along the Irvine Coast and South County coast can be successful,” said Van Landingham, a former Irvine Co. executive who was in charge of the company’s hotel development.

“How successful it will be on an international or national basis is harder to determine,” Landingham said. “It doesn’t have a year-round climate, like Hawaii, so it’s not a true year-round ocean resort.”

One thing working in its favor is that the coastal resort market appears to be far from saturated.

“For the inland hotels, there has been an oversupply that has come into the market. But the coastal resorts are quite different animals,” said Donald Engfer, head of hotel development for the Irvine Co. “There is an established pattern of coastal tourism in California, but there has been comparatively little development over the years.”

More Receptive

In 1972, the creation of the California Coastal Commission put a halt to most large seaside hotel developments. In its early years, the commission was guided by a strict interpretation of its mandate to manage coastal resources that blocked most development. But since Gov. Deukmejian took office in 1983, the 12-member board has become more receptive to developers.

Hotels also seem to be one of the paths of least resistance for developers faced with hostile environmentalists. A resort often leaves much more open space and has less impact on the environment than dense clusters of housing.

“The coastal (conservation) act does favor the development of tourist facilities, particularly when it is done in a such a way that it increases access to the coast for both paying and non-paying visitors,” said Jack Liebster, a spokesman for the commission. “Developers have gotten better at this.”

The Ritz-Carlton, which built a public parking lot and a path down to the beach, is “a perfect example,” Liebster said.

And the Irvine Co. began to make changes in its plans for the Irvine Coast 10 years ago in the face of resistance from citizens. Originally, the company planned to build 21,000 homes and two 10-story office towers on the parcel, among other things; then the Coastal Commission came along and everything changed.

Eventually the Irvine Co. agreed to let environmentalists help plan a new development and sold land it had originally intended for houses on the ocean side of Pacific Coast Highway to the state for a park in 1979.

The result is a blueprint that includes 2,600 homes and three hotels perched along the hills, which even environmentalists grudgingly approve. About three-quarters of the land will remain open.

‘Changes Coast Forever’

“Let’s face it, developments like these are going to have an impact. They’re going to change the whole coast forever,” said Judy Rosener, assistant dean at the Graduate School of Management at UC Irvine and a former Coastal Commission member with environmentalist leanings.

“But there’s no question the development we have now is better than it would have been” without the time-out imposed by the commission, she said.

Despite all the excitement over the coming resorts, industry consultants warn that making a luxury hotel work is a tricky proposition.

A rough rule of thumb in the hotel industry is that a project will not pay off unless it can charge $1 in room rates for each $1,000 spent building a room. At the Ritz-Carlton, which cost about $100 million, that translates to about $250 a night.

While the Ritz won’t divulge its average room rate, it says it falls within a range of $200 to $250 a night.

Even if the average falls somewhat short of the mark, upscale hotels like the Ritz-Carlton have other sources of revenue that can push the hotel into the black, such as food and alcohol sales and special events, including wedding receptions.

“The Ritz was a calculated risk, and it paid off,” said Christopher B. Leinberger, managing partner of Robert Charles Lesser & Co., a real estate consulting firm based in Beverly Hills.

“But that high-end group of the hotel market is so hyper-discretionary that you have to give them exactly what they want and when they want it,” he said. “And if they don’t like what you give them, they’ll go back to their friends at the country clubs and spread the word. Then the hotel will fail.”

And there is concern that California laws requiring open public access to all beaches might compromise efforts by resort operators to create an exclusive ambiance.

Boosters, however, counter that being on the beach really isn’t as important as being able to see it, especially since Orange County’s resorts are designed to be centered around golf, tennis and shopping.

“The best situation is to have a private beach,” acknowledged the Ritz-Carlton’s Schielein.

“But the second best is to have this beautiful (public) beach, the sunset in the evening and the fresh sea breeze . . . In the summer the beaches do get crowded, but we are perched on a bluff 150 feet above it all.”

Times staff writer Michael Flagg contributed to this report.