Fewer Hotels, Same Revenue for Anaheim
Anaheim won’t have the hotel rooms it had expected for the opening years of Disney’s California Adventure park, but existing hotels should fill up more often and charge higher rates to offset lost tax revenue, according to a study released Monday.
The city-sponsored report by Economic and Planning Systems of Berkeley revises estimates the company made four years ago to determine the impact of Walt Disney Co.’s second theme park at the Disneyland Resort.
The new study anticipates that about half of the 2,000 new non-Disney hotel rooms originally predicted for the Anaheim Resort Area will be in place by the end of 2002.
The study attributed the slower growth in hotel building to a shortage of financing, high land costs, generally low hotel room rates in the city and competition from 1,937 new rooms built barely a mile away in Garden Grove.
Even so, the study found that tax revenue from rooms that will be built, together with additional taxes from more fully occupied existing hotels, should make up for any lost income caused by the slower growth. And greater demand for less space should push up room rates from an average of $74 a night now to $94 in five years.
The bed tax of 15%--the highest in the state--would raise an additional $30 million in 2005, more than enough to cover shortfalls from the lack of hotel construction, according to the new EPS report. And with Disney’s new park expected to attract bigger-than-usual crowds, the city should get a bump in tax revenue for the next two years.
The study’s conclusions “are music to a municipal officer’s ears and confirm our confidence in the fiscal revitalization of this key business sector,” Deputy City Manager Tom Wood said.
The economic report means that Anaheim residents still could expect increased services from the city. A city committee will meet tonight to discuss how to spend the additional revenue. Among the possibilities are improvements to parks and libraries, Wood said.
But the report may be overly optimistic, said real estate broker Alan X. Reay, whose Atlas Hospitality Corp. tracks hotel deals. He estimates there will be 668 new rooms, far less than the 1,021 rooms estimated by the study.
Current tax revenue calculations also could be wrong because the study includes hotels that are out of business, closed for renovations or simply aren’t true hotels, he said. The 44-room Village Inn Motel, for instance, shut down in October, and the Peacock Suite Resort, with 139 rooms, is a time-share facility that rents out some rooms.
But Reay is still bullish on the area.
“The outlook for Anaheim is extremely strong,” he said. “I don’t know if the rates will be as high as they expected, and there will definitely not be as many rooms. Garden Grove got a jump start on them.”
City officials said the latest estimate is very conservative and does not take into account the opening of a recently proposed third gate at Disneyland.
“The bottom line is we will see more money coming into the city. It’s all in terms of magnitude. Do you throw a big party or a little party? Will it be $4.5 million or $6.7 million? We do not know, but the study is quite good for us,” said Bret Colson, Anaheim’s spokesman.
The new study found that hotel room demand will be greater than EPS had projected in 1996, thanks largely to the 40% expansion of the Anaheim Convention Center, now the largest on the West Coast.
Demand for hotel rooms should push occupancy rates overall from 64% now to 74% in five years, and increase room rates over the same period.
But Anaheim hasn’t been able to attract new high-end hotels, upscale restaurants or unusual entertainment hot spots that would erase the image of inexpensive motels, T-shirt shops and fast-food joints outside the Magic Kingdom. Those projects are mired in financial and design difficulties.
The city’s 13 major hotels--a dozen of them in the resort area, including two Disney hotels--account for 41% of the total hotel rooms in the city. But they serve the convention and business market and are not considered high-end. They charge an average of $110 a night, a price that should hit $128 a night in 2005, the new report states.
More prevalent are inexpensive hotels and motels that charge an average of $46 a night. The report expects those rates to hit only $50 a night in five years, dragging down the overall average and dampening enthusiasm from lenders to back luxury inns.
The study also found that:
* Existing Anaheim hotels can absorb the demand. During summer months, the occupancy rate would be as high as 86.5%.
* Existing Disney hotels and Disney’s new Grand Californian luxury hotel, scheduled to open in January inside California Adventure, will garner higher room rates than expected in 2005, offsetting shortfalls predicted from non-Disney hotels.
* New hotels could charge as much as $170 a night during California Adventure’s first year of operation, but the average would slide to $138 a night by 2005.
City officials ordered the new financial study to reassess expected revenue after major projects faced long delays and competition from Garden Grove heated up. City officials were concerned that the financial landscape might be radically different than when they sold $510 million in improvement bonds.
Wood said the city was ahead of schedule in amassing funds to make bond payments and would not need Disney guarantees to complete promises to lenders.
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Room Rates to Climb
A revised economic study for the Anaheim Resort Area, around Disneyland, shows that the growth in hotel construction has slowed, but that higher demand will push up occupancy rates and nightly room prices--along with tax revenues. A look at expected room rates:
New Hotels: $137.37
Major Hotels: $128.33
Other Hotels: $50.78
Source: City of Anaheim
