Rooms for Improvement : Eager to Better Profits, O.C. Innkeepers Are Sprucing Up Quarters

Room service is the hottest thing going at Orange County hotels this year, but it has nothing to do with the food.

Rebounding occupancy and profits have sparked a rehab firestorm among area hoteliers, who are sprucing up their guest quarters with a zeal that would make Martha Stewart proud.

The local fix-up spate is part of a nationwide surge that will see U.S. hotels spend billions this year to replace worn carpets, freshen tired decor and splurge on new amenities waylaid by the economic downturn of the early ‘90s. “Pardon our dust” is the sign of the times, and a welcome distraction for innkeepers who hear opportunity knocking with each hammer stroke.

“During the recession, a lot of hotels were strapped so tight they couldn’t do much of anything,” said Greg Case, general manager of the Sheraton Hotel Newport Beach, which has remodeled its front entrance and two club level floors as part of a nearly $2-million face-lift. “Smart operators are making improvements now while they can. Those that don’t risk losing their customer base to competitors.”

Operating profits in the hotel industry grew 20.5% in 1995, the biggest single-year increase since 1978, according to Los Angeles-based PKF Consulting.

Part of that vitality stemmed from the general health of the economy, which saw more business travelers and tourists hitting the road. Hoteliers also boosted profits by bumping room rates an average of 5.9% nationwide last year, according to PKF.

Price increases have been harder to come by in the fiercely competitive Orange County market. Countywide occupancy averaged 72.1% in the first five months of 1996, up from 68.3% over the same period last year. Innkeepers have been looking for a period of sustained demand to pass along at least modest rate hikes this year. But the continued battle for market share has kept rates at bay.

Hoteliers trying to get a few more bucks for their properties these days have to offer consumers a clearly better product. That means fresh, sparkling, spit-polished rooms in addition to top-flight service.

The ongoing rehab of the former Crown Sterling hotel in Anaheim is a case in point. A Texas hotel chain purchased the property in January, upgraded it and changed the flag to Embassy Suites. Those efforts have resulted in higher occupancy and about a $15 increase in the average room rate, but it took a $3.5-million make-over of all 224 rooms to get there, according to general manager Blaise Bartell.

“Consumers are more demanding and sophisticated than ever,” Bartell said. “In a competitive market like this, the quality of your product has to justify any price increase.”

The hotel industry is traditionally cyclical, thus the bust of the early ‘90s set the stage for the current rehab boom. Buyers paid stratospheric prices for hotels in the 1980s, only to watch their value plummet during the economic downturn. Funding for hotel deals dried up and many lenders were left holding the keys when owners walked away from their investments. Many of those properties deteriorated for lack of adequate maintenance.

But a virtual halt in new construction, coupled with steady growth in demand for rooms in recent years, have brought hotel properties back into favor. Since January, investors have snapped up nearly $3 billion in initial public offerings and secondary offerings by hotel chains and hotel real estate investment trusts. Savvy buyers are purchasing hotels for significantly less than it would cost to build new ones, making it possible for them to free up millions of dollars for much-needed improvements.

“Wall Street is very high on the hotel business right now,” said Donald Wise, a hotel broker with CB Commercial Real Estate Group Inc. in Anaheim. “Money is available . . . and that’s what’s driving a lot of the activity.”

EquiStar Hotel Investors, a $250-million investment fund formed by Washington-based CapStar Hotels and a Texas partnership led by financier Robert Bass, is capitalizing on the trend. Formed in late 1994 to invest in hotels, the group has since purchased 12 properties, including the troubled former Radisson Plaza Hotel in Irvine.

Renamed the Orange County Airport Hilton, the 289-room hotel is undergoing a $2.5-million renovation that will include an exterior face-lift and an overhaul of the guest rooms.

“Part of our strategy every time we buy a property is to immediately do a renovation to get the property up to full performance,” said Larry Shupnick, senior vice president of CapStar, which recently filed with the Securities and Exchange Commission to sell nearly three-quarters of its stock in an initial public offering expected to raise $125 million. “Tired properties can’t compete with those that are improving.”

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Marriott’s Laguna Cliffs Resort in Dana Point and the Ramada Conestoga in Anaheim have undergone similar transformations recently, each spurred by new ownership, a name change and millions in improvements.

But new owners aren’t the only ones gussying up. Chain hotel operators typically set aside 3% of their revenue every month to fund future capital improvements and help insulate themselves against the vagaries of the economy.

The $4 million being spent this year to freshen guest rooms and public areas at the Anaheim Marriott Hotel is simply regularly scheduled maintenance, not a response to the rebounding tourist trade, general manager Ned Snavely said.

“This is business as usual for us,” said Snavely, who contends it’s smarter to rehabilitate regularly than let a property deteriorate and be forced to spend millions more to try to win customers back.

Undoubtedly the biggest hotel renovation planned for Orange County this year is the $18.5-million make-over of the Anaheim Hilton. Beginning in August, every one of the convention hotel’s 1,576 rooms and suites will get the works--new carpeting, furniture, draperies, bedspreads, wall coverings, bathroom vinyl, artwork and the like.

The work will be completed in phases through next spring, so it won’t interfere with the hotel’s operations. The Hilton’s public areas, meeting rooms and banquet facilities will be updated with stylish colors and appointments.

Hilton spokesman Patrick Hynes says the hotel has spent more than $1 million a year to keep things fresh since it was completed in 1984. But he says the Hilton’s new “California resort look” will put the hotel in sync with other new projects coming to Anaheim, such as the stadium renovation, convention center expansion and the planned companion park for Disneyland.

“The hotel is 12 years old, and it’s time for a new look,” Hynes said. “We think it’s coming at just the right time with all the big things planned for Anaheim.”

Still, experts say conditions were so tough in the early ‘90s that even the strongest operators pinched pennies and put off replacing carpet, furnishings and other necessities longer than they normally would have.

“We’re seeing a certain amount of catch-up,” said Larry Kantor, director of hospitality consulting for Arthur Andersen LLP in Los Angeles. “There was a lot of deferred maintenance and renovations during the lean times.”

For that reason, Kantor said, many hoteliers are spending on improvements that guests can actually see, leaving “back of house” renovations for future years.

Likewise, area hotels appear especially keen to lure business travelers.

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The Buena Park Holiday Inn Hotel and Conference Center recently converted its entire fourth floor to an executive level, complete with private elevator, a business center and an executive lounge. Several area Marriotts are equipping guest quarters with spacious desks, ergonomically correct chairs, special lighting and plenty of ports for laptop computers as part of their “The Room That Works” package. The Sheraton Hotel Newport Beach recently installed a high-powered server and fiber optic connections to speed business guests onto the infobahn.

Dan Howery, general manager of the Buena Park Holiday Inn, says such renovations reflect the increasing level of technology required by business travelers. He says the changes likewise point to a new pragmatism, compared to the 1980s when hotels tried to woo customers with miniature shampoos, oversized cocktail lounges and other frills.

“In the ‘80s it was more fluff and aesthetics,” Howery said. “Now it’s necessities and functionality.”

Expensive future technologies could drive the cost of periodic renovations even higher. Some industry analysts have suggested that hoteliers increase their current 3% standard reserve to as much as 7% of monthly revenue to keep pace with rising rehab costs.

That could make life even more challenging for Orange County hotel operators, locked in a constant competitive struggle to offer guests the spiffiest rooms in town.

“Let’s face it, if Hyatt redoes their ballroom, I have to do what it takes to stay competitive,” said Bruce Gorelick, general manager of the Irvine Marriott, which will spend $2.5 million on renovations this year. “Hotels drive each other to keep improving. If my product is tired, shame on me.”

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Hotel Highs

Orange County hotel occupancy and average room rates are expected to hit five-year highs this year, increased signs that the county is moving out of recession:

(Please see newspaper for full chart information.)

OCCUPANCY

1996: 70%*

AVERAGE ROOM RATE

1996: $80

* Estimates

Source: PKF Consulting

Researched by JANICE L. JONES / Los Angeles Times

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Tourism Increase Sparks Renovations

Orange County hotels have emerged from recession and are treating themselves to a face-lift. A partial list of properties where renovations are finished, underway or set to begin this year, in millions:

1. Anaheim Hilton and Towers

Renovations: Guest rooms, lobby, public rooms, meeting rooms, banquet facilities

Cost: $18.5

2. Hyatt Regency Irvine

Renovations: Lobby, restaurant, ballroom, public areas, guest rooms, phone system, electronic room locks

Cost: 5.0

3. Anaheim Marriott

Renovations: Guest rooms, meeting rooms, public areas

Cost: 4.0

4. Holiday Inn-Buena Park

Renovations: New executive-level rooms, business center, lobby, restaurant, bar and exterior

Cost: 4.0

5. Newport Beach Marriott Hotel

Renovations: New business-class rooms, guest rooms, lobby and tennis club

Cost: 3.5

6. Embassy Suites Hotel (Anaheim)

Renovations: Guest rooms, lobby, meeting rooms, ballroom

Cost: 3.5

7. Holiday Inn-Anaheim Maingate

Renovations: Guest rooms, lobby, restaurant, bar, public areas

Cost: 3.5

8. Marriott Laguna Cliffs Resort

Renovations: Landscaping, lobby, meeting rooms, restaurant, lounge, guest rooms

Cost: 3.5

9. Irvine Marriott

Renovations: New business-class rooms, guest rooms, ballroom

Cost: 2.5

10. Orange County Airport Hilton

Renovations: Exterior, guest rooms, meeting rooms, lobby, cafe

Cost: 2.5

11. Sheraton Hotel Newport Beach

Renovations: Parking lot, front entrance, guest rooms, Internet access

Cost: 1.8

12. Wyndham Garden Hotel

Renovations: Restaurant, lobby, computer system, guest rooms

Cost: 1.0

13. Ramada Conestoga (Anaheim)

Renovations: Guest rooms, electronic room locks, pool area, exterior, parking lot roofing, reservation system

Cost: 1.0

14. Red Lion Hotel/Orange County Airport

Renovations: Executive-level rooms, guest rooms, reservation system, bar, meeting rooms

Cost: 1.0

15. Marriott Suites Costa Mesa

Renovations: Guest rooms

Cost: 0.6

16. Embassy Suites Hotel (Brea)

Renovations: Carpet, electronic room locks

Cost: 0.3

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Source: Orange County hoteliers; Researched by MARLA DICKERSON/Los Angeles Times