Tourism, Economy Push Hotels Toward Checkout Time : Business: The industry slump has resulted in layoffs, unfinished projects and scores of empty rooms. A half dozen Westside establishments have slipped into bankruptcy.
From the top of Culver City hotels, banners beckon travelers on the San Diego Freeway with low room rates. Blowing in the breeze, they are just one more sign that times are tough in the hotel industry.
Caught with too many rooms and not enough people to fill them, hotels ranging from plain to posh are cutting rates in a quest for guests.
Some shout their discounts from rooftops. Others are more discreet. But across the Westside this summer, hotels are locked in a fierce battle for business.
It is a fight with far-reaching implications because the hotel industry is a major source of both jobs and tax revenue to local communities. Hotel union officials say their workers are facing reduced hours and, in some cases, layoffs because business is weak.
“It’s like a triple whammy: the economy, the riots and the earthquakes,” said Saul Leonard, president of a Century City consulting firm that specializes in the hotel industry.
Some problems of hotel operators are rooted in the excesses of the ‘80s, when the business seemed so attractive and credit so easy that investors would pay almost any price to get in.
Now, almost everyone who bought or built a hotel during that period is saddled with a huge debt. Meanwhile, the building boom thrust thousands of new rooms on the Westside market just as the economy was cooling, and tourist and business travel entered a steep decline.
Already, more than half a dozen hotels from Marina del Rey to West Hollywood have slipped into bankruptcy. New hotel projects have been halted midstream.
On the beach in Santa Monica, the unfinished Park Hyatt hotel stands as a silent monument to a troubled industry. Plagued by construction problems and massive cost overruns, the project is in bankruptcy. A lone security guard watches over the boarded-up structure on the beach at the foot of Pico Boulevard.
Two blocks away on Ocean Avenue, work has all but stopped on another luxury hotel. Only the concrete and steel foundation has been completed while the developer, Maguire Thomas Partners, struggles to find financing and a company to operate the hotel.
Maguire Thomas officials believe the glut is a long-term one. In the huge Playa Vista development the company has planned near Marina del Rey, they have eliminated 1,350 of the 2,400 proposed hotel rooms.
For those hotels already open, the immediate challenge is keeping occupancy up when tourism and business travel are down. The pressure to cut rates is intense.
“Hotels are discounting because they are not getting occupancy to cover their operating costs,” said Jordan L. Richmond, a hotel-industry specialist for Grubb & Ellis Co., a commercial real estate firm.
Hotel-industry expert Bruce Baltin of PKF Consulting concurred.
“I doubt there is a major hotel in West Los Angeles that isn’t being severely impacted right now by the downward pressure on room rates,” he said. “Many of the hotels are under a very high debt burden. They need to generate as much cash as possible.”
In the Los Angeles area, the downturn started more than two years ago, and gathered momentum in the months leading up to the Persian Gulf War.
All of 1991 was poor, according to consultant Leonard. “The whole economy reduced tourism and travel throughout the U.S,” he said.
The domestic recession, deep cuts in defense industries and a cooling of the economy in Japan--the region’s biggest source of foreign travelers--all took a toll.
Then, at the end of April, Los Angeles exploded in the worst urban riots this century. Images of violence, looting and fires were broadcast worldwide. The reaction was almost instantaneous.
In May, consultant Baltin said, occupancy rates at hotels in West Los Angeles, including Beverly Hills and Century City, plunged 10 percentage points from the previous year’s level, from 60% to 50%.
Hotels reported many cancellations. Foreign tourism, especially from Japan, fell sharply. Occupancy was starting to creep back up in June when earthquakes struck desert and mountain areas east of Los Angeles, triggering another wave of negative publicity.
“They were right on the heels of each other,” Leonard said. “There was no time to breathe. It’s got to hurt Los Angeles.”
Industry observers do not foresee a quick turnaround. “You can probably write off 1992 for any kind of recovery,” Leonard said, adding that the industry’s woes will likely carry over into 1993.
Some are even more pessimistic. “It’s going to continue to be tough economically for the next two or three years,” Baltin said.
In the meantime, hotels from modest to exclusive are all being forced to shave their room rates and aggressively seek business.
The high-rise Pacifica Hotel in Culver City is flying a banner offering rooms starting at $59 a night. “You do what you have to do to get them in,” said sales director Cecilia Secka.
The hotel has just undergone a $4.5-million renovation and is trying to attract business. “It has been an extremely tough year,” Secka said. “We have that banner up there to bring people in.”
Across the San Diego Freeway, the Ramada Hotel is offering its own deal.
In the upscale environment of Century City, the approach is more subtle, but the objective is the same: to boost occupancy.
The Westside’s biggest hotel, the Century Plaza Hotel and Tower, is struggling to fill its 1,072 rooms. The hotel is advertising a special $109 room rate every day, down from the standard $150 corporate rate.
“The Los Angeles hotel market has been a tough business for quite some time,” said marketing manager Chuck Bowling.
Bowling said business was just beginning to recover from a “very difficult” 1991 when “the riots and the earthquake situation knocked us back a couple steps.”
Even the pricey precincts of Beverly Hills are not immune to the discounting.
The posh Peninsula Hotel, which maintains a Rolls-Royce limo for guests, is offering a special $199 rate during August to celebrate its first year in business, down from $265. “It’s a tough time across the board, across the nation,” spokeswoman Peggy Griffin said.
At the Regent Beverly Wilshire, sales director Ken Stiles said the hotel is more aggressive in seeking corporate and group business and more flexible with prices.
“We’re definitely feeling the pressure,” he said. “The occupancy levels are not what we had hoped they would be.”
On the waterfront in Marina del Rey, room rates are also down. “In today’s economy, you could walk up to the front desk at any hotel and negotiate a rate,” said Ritz-Carlton General Manager John Dravinski. “We’re trying to get bodies in the beds.”
The marina’s most upscale hotel has lowered its summer weekend rate to $149 and is stepping up its sales and marketing efforts to attract business. “It’s a tough summer,” Dravinski said.
To cut costs, the hotel’s flower budget has been slashed from $27,000 to $4,000 a month, meaning fewer roses in guest rooms. Dravinski predicted that it will take “another two years until we start seeing any turnaround.”
Three hotels in the marina--the Marina Beach, Marina International and Marina del Rey--are operating under federal bankruptcy protection.
Under pressure from bankers, developer Abraham M. Lurie filed for bankruptcy a year ago. He remains locked in a bitter battle with his Saudi Arabian partners for control of a vast marina empire that also includes apartments, boat slips, shops, offices and restaurants.
In Santa Monica, the Park Hyatt has also been in bankruptcy since last September, when Tokai Bank Ltd. moved to foreclose on its $71-million loan for the beachfront project.
A bitter dispute between developer Sam Stein and the contractor, Gosnell Builders, left the 198-room project unfinished and sent the hotel’s costs soaring over $107 million. A Beverly Hills partnership is seeking to buy the hotel out of bankruptcy.
And in West Hollywood, the collection of boutique hotels assembled by hotelier Severyn Ashkenazy is also in disarray, with some of the properties seized by banks and others in various stages of bankruptcy or foreclosure, according to industry sources. Ashkenazy, through his attorney, refused to comment.
“He’s been hurt dramatically,” Richmond said.
Local governments also feel the industry’s pain. In West Hollywood, for example, Ashkenazy’s difficulties and the drop in tourism have prompted officials to scale back their projections of hotel tax revenues from $4.6 million last year to $4.1 million for the fiscal year that started July 1.
Hotel Projects in Jeopardy
A look at some Westside hotel projects and their problems:
MARINA DEL REY
Marina Beach Hotel, Marina del Rey Hotel and Marina International Hotel: All operating under federal bankruptcy protection. Developer Abraham M. Lurie, majority partner in all three hotels, is involved in a bitter legal struggle with his Saudi Arabian partners for control of the hotels and other marina properties.
SANTA MONICA
Park Hyatt: Located on the beach at Pico Boulevard. Construction halted since 1991 in connection with a dispute between developer and contractor; in bankruptcy proceedings; a proposed sale is pending.
Maguire Thomas project: Located on Ocean Avenue. Despite approval from the city and the Coastal Commission two years ago, only the foundation has been laid. With no financing and no hotel operator lined up, construction of the hotel is stalled.
BEVERLY HILLS/WEST HOLLYWOOD
Hotelier Severyn Ashkenazy’s empire is in extensive financial disarray, according to industry sources. Lenders have taken over two small Ashkenazy hotels in West Hollywood, the Mondrian and Le Dufy. Others, including L’Ermitage in Beverly Hills and the Bel Age, Valadon, Le Parc and Le Reve in West Hollywood, are also reported to be in bankruptcy or foreclosure proceedings. Ashkenazy, through his attorney, declined to comment.
