$140-Million Hyatt Under Construction on Waterfront : Lodging: Despite a saturated market, the hotel may have an edge because of its proximity to the Convention Center.

Despite a sluggish local hotel market, construction of a new $140-million Hyatt Regency near the San Diego Convention Center is finally under way after eight years of planning, and the opening is scheduled for late 1992.

Developer Torrey Embarcadero Hotel Ltd., an affiliate of the Manchester Group of San Diego, met an Aug. 7 deadline set by the the San Diego Unified Port District to provide proof of financing for the 875-room, 39-story structure, said company Executive Vice President Richard Gibbons.

After an extensive search, Torrey Embarcadero secured financing from Yasuda Trust & Banking of Tokyo. In an unrelated deal with a different developer, Yasuda also recently agreed to finance a $32-million upscale fashion retail complex in downtown San Diego, scheduled for completion in October, 1991.

“Some people think that San Diego is overbuilt,” Gibbons said. “It’s a difficult (hotel) market to secure financing in. . . . We’re lucky to be on the waterfront, so Yasuda thought that was unique enough to finance it.”

The Manchester Group was also the developer of the twin-tower, 1,355-room San Diego Marriott Hotel & Marina, next to the Hyatt site on one side, and the San Diego Convention Center on the other.

Torrey Embarcadero has a 66-year lease agreement with the Port District on the 6-acre Hyatt lot, which is between Seaport Village and the Marriott, Gibbons said. The hotel will employ about 800 people, he said.

Although San Diego’s hotel market is considered by many observers to be overdeveloped----countywide vacancy rates through June averaged 64%, down from 68% last year----local business executives say the new Hyatt’s chances of success are good because of its location near the Convention Center. The Hyatt will help generate its own clientele by attracting additional conventions to the area, said Scott Smith, a manager at the Pannell Kerr Forster accounting and consulting firm.

Large conventions and meetings often go only to centers where they can book all or most of their delegates into hotels within walking distance of the meeting halls, Smith said. The only hotel next to the San Diego Convention Center now is the Marriott, which does not have the capacity to put up major gatherings, he said. Consequently, San Diego is losing conventions to other major cities, Smith said.

Although the Hyatt is bound to take customers away from other downtown hostelries competing for Convention Center delegates, it will have a negligible long-term effect on struggling downtown hotels such as the Kingston, Omni and U. S. Grant, said Greg Peerbolte, a principal with the Laventhol & Horwath accounting firm, a consultant for the hotel industry.

Peerbolte said the additional rooms will put San Diego in the running for large conventions with cities such as Anaheim, Los Angeles, San Francisco and Palm Springs. “A hotel of (the Hyatt’s) size and that caliber is going to compete with hotels in other cities,” he said. “I think it’s a different market.”

“When people book a convention, they ask how many rooms are close to the Convention Center,” he said. “They need that hotel to bring the larger conventions that will come in ’93 and ’94.”

For now, the hotel industry in general faces some tough times. Although the number of guests staying in San Diego County is increasing, new hotel rooms are opening up even faster, said Dal L. Watkins, president of the San Diego Convention & Visitors Bureau.

“Even though we have more people coming in every day, the supply is definitely ahead of the demand,” Watkins said.

Still, major chains continue to build because they are willing to suffer through hard times at first to establish a niche in San Diego’s growing market, Watkins said. Recent major additions to the area hotel market include the Sheraton Grande at Torrey Pines, the Hyatt Regency La Jolla and Embassy Suites in La Jolla.

Peerbolte said the San Diego Marriott has done well, and the Hyatt will draw enough additional conventioneers to keep both hotels profitable.

“The hotels right along the bayfront are doing quite well,” he said. “Of course, the Convention Center has something to do with that.”