Too Many Rooms at the Inn : 3-Year-Old San Pedro Sheraton, Victim of an Overbuilt Market and the Recession, Will Be Put on the Auction Block Today

When it opened almost three years ago, the Sheraton Los Angeles Harbor Hotel was hailed as the cornerstone of San Pedro’s effort to revitalize its downtown area.

New restaurants and shops would flourish thanks to the hotel’s stream of business travelers and tourists. Ports O’ Call Village would get a needed boost from visitors to the 10-story hotel, which boasted some of the most scenic guest rooms in the city with views of the port and cruise-ship terminal.

But today, a project that took seven years to get off the ground could be sold on the auction block, a victim of an overbuilt hotel market and a severe recession in the lodging industry. The highest bidder is expected to shell out $12 million to $16 million, a fraction of its $36-million cost.

The hotel is one of more than 30 properties valued at more than $200 million that will be auctioned today at the Hyatt at the Los Angeles Airport. The properties are owned by banks, insurance companies, corporations and credit companies and include hotels, industrial properties, office buildings and retail properties.

The 244-room hotel, at 601 S. Palos Verdes St., is by far the largest in San Pedro’s downtown area, and it includes a 200-seat restaurant, entertainment lounge, fitness center and sauna, heated pool and spa.

The owner, Goldrich & Kest Industries of Culver City, opted to sell at auction after operating the hotel in the red, including $1.5 million in operating losses last year.

“We are real estate developers, we are not owners and operators,” said Warren Breslow, a partner at Goldrich & Kest. “It’s a first and a last.”

Meanwhile, across from the hotel on 6th Street, a real estate broker’s signs line windows in vacant retail slots. Plans to build an office building on the same block as the hotel have been put on hold.

“(The hotel) is very important to us as a business investment,” said Herb Zimmer, president of the San Pedro Chamber of Commerce. “Unfortunately, the timing was not the greatest.”

Originally, the hotel was a venture of Beacon Street Associates, a partnership that included Goldrich & Kest and Lazben Hotel Investment Co. in Los Angeles. Lazben dropped out even before the project was completed, leaving Goldrich & Kest as the hotel’s chief owner and operator.

“The truth of the matter is, it is day and night owning a hotel and owning some other type of real estate investment,” Breslow said.

The Sheraton has been nearly full on weekends, but a large share of rooms are occupied by flight crews from British Airways, which signed a three-year agreement in 1992 to occupy 74 hotel rooms throughout the year at a reduced price.

In the first three months of the year, the hotel’s room rate averaged $43.64 per night, down from $52.69 a year earlier. In the entire South Bay, the average room rate was about $66, according to PKF Consulting in Los Angeles, which tracks the hotel market.

“You would expect room rates in the high $60s or low $70s,” said Donald Wise, vice president for lodging and hospitality programs at CB Commercial Real Estate Co. in Anaheim.

Jordan Richman, the Grubb & Ellis Co. property agent representing the hotel at the auction, said that they have received calls from prospective owners interested in changing the name, and perhaps its marketing strategy, or keeping the status quo as the Sheraton.

“It may have been too high a profile in that market,” he said.

Several brokers say that San Pedro needs more office tenants to justify a hotel of the caliber of the Sheraton. And it competes against an overbuilt market just across the bay in Long Beach.

“It’s a shiny new face in the neighborhood, that’s the good news. But typically hotels don’t lead the pack” in reinvigorating an area, Wise said, “they follow.”

Still, civic boosters say just getting the hotel built has been a big boost. Many look back to 1969, when the area was a skid row of junk and pawnshops, bars and pool halls. It was then that the city of Los Angeles declared a 60-acre portion of San Pedro’s downtown a redevelopment project area.

“The area has tremendous potential for growth,” said Jeffrey Skorneck, the Los Angeles Community Redevelopment Agency project manager for the San Pedro site. “There are lots of people poised to make moves (to buy land now) and make a good profit.”