Coastal Hotels Have Day in the Sun
The opening of two new oceanfront hotels, together with the purchase of the former Miramar Sheraton last month, has turned the warm sands of the Santa Monica beachfront into a very hot market for luxury hotels.
With no more hotel construction allowed along the city’s coastal area, room rates and occupancy levels are both likely to remain high. And although activity appears to have reached a peak in recent months, Santa Monica’s hotel investors have been at work for years on the current crop of luxury hostelries.
In October, Edward Thomas Cos. of Beverly Hills opened the 129-room Casa Del Mar, a new luxury hotel built within the shell of the historic 1926 building of the same name. The new hotel stands immediately south of the 198-room Shutters on the Beach, which the same owner opened in 1993.
This month, Columbia Sussex Corp. of Fort Mitchell, Ky., is scheduled to open Le Merigot, a 175-room hotel on Ocean Avenue. The current owner bought the project in 1996 from Maguire Partners, which had envisioned a hotel on the site more than a decade ago.
An existing ocean-side hotel slated to go upscale is the former Miramar Sheraton, which was purchased last month by Maritz, Wolff & Co. of Los Angeles for $90.6 million and was renamed the Fairmont Miramar Santa Monica Hotel. The hotel plans an upgrade in service, as well as a sharp increase in room rates, according to F. Matthew DiNapoli, executive vice president of Maritz Wolff.
Although DiNapoli did not quantify the rate increases, he said they would approach the levels charged by Shutters and Casa Del Mar, which start at $335 a night. Similarly, Le Merigot plans to charge a bottom rate of $299, according to Sig Ortloff, the hotel’s general manager. Loews Santa Monica Beach Hotel, the area’s other luxury-class hotel, starts at $280 a night.
Both location and demand account for the high rates. In contrast to typical hotel markets, which appeal either to weekend vacationers or to weekday business travelers, Santa Monica appeals to both groups, according to Alan Reay, president of Pacific Atlas Hospitality Group, a Costa Mesa-based hotel broker.
“It’s a seven-day-a-week market,” added Timothy S. Dubois, president of Edward Thomas.
Santa Monica’s swank new hotels will also appeal to the growing number of entertainment, high-tech and “creative” companies that are in the city, Dubois said.
For those reasons, Santa Monica hotels, particularly the plush ones, have higher occupancy rates than Los Angeles County as a whole. Although occupancy rates for Santa Monica are not available, Shutters reports an average occupancy rate in the mid-80% range, Loews in the high 80s, and the Fairmont Miramar is about 80% occupied.
Hotel occupancies in Los Angeles County, in comparison, averaged 75.5% in August, according to Smith Travel Research, a hotel-industry research firm in Hendersonville, Tenn.
Santa Monica voters probably did not intend in 1990 to create a high-end hotel market on the city’s coveted oceanfront when they approved Proposition S. (In the same election, city residents also rejected a $65-million hotel proposed by restaurateur Michael McCarty.)
Proposition S put a low ceiling on new construction along Santa Monica’s waterfront--almost no new hotel rooms, other than those already approved, could be built. As an existing hotel, Casa Del Mar was affected only in that developers could not add rooms; Le Merigot had locked in its right to build years earlier when Maguire hatched plans to develop the property.
“Le Merigot is the last approved [hotel] project along the coastline,” Ortloff said. “As far as new construction, we are the last one.”
Those constraints help explain why Edward Thomas was willing to take on such obstacles as retrofitting existing structures. The company bought Shutters in the early 1990s in an incomplete state after an earlier developer filed for Chapter 11 bankruptcy protection. With Southern California still deep in recession, the moment did not seem propitious to invest in hotels.
“We were the only ones there” at the property auction where Edward Thomas bought the project for a reported $15 million, Dubois said. “We joked that we did not know if we were the smartest or the dumbest hotel investors, because we were the only ones there.”
The gamble appears to have paid off for Edward Thomas, according to Dubois. “The most significant thing we have done is create a luxury hotel market on the beach that didn’t exist before the company opened Shutters.”
Casa Del Mar represented both a greater investment and greater technical challenges for the developer.
Built in 1926 for the then-princely sum $2 million, the hotel started out as a luxury property, then slowly went downhill. At its nadir, in the 1960s, the elegant Italian Renaissance-style structure was headquarters for Synanon, a drug-rehabilitation program. Most recently, the building was headquarters of the Pritikin diet program.
As a landmark building, the facade could not be changed--although the developer did reconstruct the original arcade on the western side. In the interior, where little of the original hotel remained, the owner had a freer hand.
Architects in the Santa Monica office of HLW International and Thomson Design Associates gutted most of the building, moved most of the walls of the guest rooms, relocated the restaurant and created a new ballroom downstairs. HLW replicated a penthouse that had been part of the original structure, but was later destroyed. The architects also had to reinforce the building, which has three different structural systems, to meet current earthquake codes, and strengthen interior fire escapes.
“It was like putting together pieces of a puzzle,” said architect Michael White. The final result, added architect Angel Alcala, is a place of “casual elegance” influenced by Italian and Mission styles.
The final price tag of $60 million means the average room cost aout $465,000--a high price even by luxury hotel standards. Dubois acknowledged that the per-room cost was “a pretty hefty number.” At the same time, he added, the building is “an irreplaceable asset.”
“If this building were to come down, it could only be replaced by a three-story building,” said Dubois, “and it could not be a hotel.”
