Hotel Boom Emerges in San Diego

A raft of new downtown hotels are taking shape to meet the surge in visitors that is expected after a $216-million expansion of the San Diego Convention Center is completed in mid-2001.

Leading the new crop of hotels is the recently opened $42-million San Diego Gaslamp Hilton, the first from-the-ground-up hotel to be built in the city’s Gaslamp Quarter in a century. More than a dozen others totaling 3,600 rooms are either under construction or have been given the go-ahead by the city or port district. They include projects by Hyatt, Westin and Le Meridien.

Even without the added room demand that the expanded Convention Center will generate, San Diego is currently one of the nation’s strongest hotel markets, said Brian Baltin of PKF Consulting in Los Angeles. Occupancy rates averaging 76% place it ahead of most of the state, while average room rates at central locations are $126 a night, higher than the $105 average in downtown Los Angeles, he said.

San Diego is one of 13 major U.S. cities where existing convention centers are being enlarged to accommodate the nationwide boom in group meetings and exhibitions. Anaheim will soon double its meeting and exhibit space, while plans for a Los Angeles Convention Center expansion have been plagued by the lack of nearby hotel rooms.

Once completed, the San Diego Convention Center will have 615,000 square feet, more than doubling its current capacity. That will make it the 20th-largest convention hall in the country, although still much smaller than mammoth facilities in such cities as Chicago, Anaheim, Orlando and New Orleans, each of which will have 1 million square feet.

The explosion in the average size of an exhibit and in the numbers of people flocking to them is what’s behind the rush by cities to expand existing facilities. And politicians have been able to persuade voters to approve them by touting the benefits that accrue in the form of tourism revenue and higher bed and sales taxes.

While last year’s major conventions totaled 4,500 nationwide,up 37% from the 1990 total, meeting attendance has quadrupled and total square footage of exhibit space rented quintupled over the decade.

“It’s partly our growing economy, but also that meetings are increasingly seen as the most cost-effective way to do business. With exhibitors and decision makers all under one roof, companies get more bang for the buck than by one on one sales calls or with advertising,” said Carol Wallace, president of the San Diego Convention Center Corp.

About a quarter of the 273 convention facilities in North America are undergoing some sort of expansion “related to the growth spurt going on now” and exhibit space overall is expected to grow by 20% by 2004, San Diego Convention Center spokesman Fred Sainz said recently.

Downtown hotel room demand also will be tighter with the projected 2002 completion of the 12-block downtown San Diego Padres baseball stadium complex which is expected to draw tourists and business travelers. But the Convention Center--and meeting planners’ preference for rooms within walking distance of the hall--are the real impetus for the hotel development surge.

That’s why SD Malkin Properties, the San Diego-based firm that developed the already open 252-room Hilton project, changed its original plan to build residential lofts on the site bordered by Fifth Avenue and K Street. The developer made the change shortly after San Diego voters in 1998 approved the expansion of the Convention Center, which is located less than 100 yards away from the hotel.

“Being so close to the front door of the Convention Center, we thought it would make an ideal hotel site,” said Jeremy Cohen of SD Malkin Properties.

His project is located at the south end of the 16-block Gaslamp Quarter, a historic district that has become the city’s leading restaurant and nightclub area since the Convention Center opened in 1990. In addition to the Hilton, the project will include a restaurant operated by the same firm that manages Water Grill in downtown Los Angeles and Ocean Avenue Seafood in Santa Monica, Cohen said.

Although the new Hilton’s proximity to the Convention Center would seem to make development a smooth proposition, Cohen admitted to enduring a long struggle to build on the site, which his firm acquired in 1990 just as San Diego was heading into deep recession caused by defense budget cutbacks and steep job losses in the region.

“We’ve been trying to develop it for 10 years,” Cohen said.

The now-vibrant Gaslamp Quarter is an example of how a convention facility can boost urban development. The district was mainly a scene fo strip clubs, bars and X-rated movie houses until redevelopment efforts began in earnest in the 1980s, said Beverly Schroeder, a senior planner with Centre City Development Corp. Many initial redevelopers failed.

“People think it happened overnight but a lot of the success happened on the backs of investments of people who never made it,” Schroeder said.

As San Diego Convention Center has slowly carved a niche in the medium-sized but well-heeled convention and exhibit sector, hotel development has failed to keep pace with increased numbers of visitors, PKF Consulting’s Baltin said.

Hotel developers in San Diego, as elsewhere around the nation, have been stymied by reluctant lenders. In a recent speech, Wallace complained that hotel construction financing is still generally hard to get for developers even in strong hotel markets such as San Diego.

Sainz of the Convention Center said business is so good that his hall can afford to be selective about the conventions it agrees to host, limiting groups to those that will commit to spending minimum amounts on highly profitable collateral activities such as on-site entertainment. Other new hotel projects include a second 750-room Hyatt to be located across Harbor Drive from the existing 875-room Hyatt tower; a 500-room Westin Hotel and a 202-room AmeriSuites to be built inside the baseball stadium complex; and a 369-room Le Meridien low-rise hotel set for the Gaslamp Quarter at 5th Avenue and J Street.

Also on the drawing boards--but still requiring approval from the state Coastal Commission--is a mammoth 1,000 room “headquarters hotel” to be situated at the southeast end of the Convention Center on the site of the old Campbell Shipyard. Hotel developer Doug Manchester has not yet named an operator.

When completed, the new hotels will bring the total of rooms within walking distance of the Convention Center to 8,600, a statistic that highlights the competitive disadvantage faced by the Los Angeles Convention Center, which has less than 400 rooms within walking distance.

In the cutthroat convention business, San Diego also likes to tout its relatively low hotel bed tax of 10.5%, which is under the national average of 12% and significantly lower than Los Angeles’ 14%, said Sal Giametta, vice president of San Diego Convention and Visitors Bureau.

But San Diego has at least one serious handicap as a convention destination: its airport. Situated close to downtown, cramped Lindbergh Field already approaches gridlock on holidays and other peak travel days. A decade-plus of civic efforts to relocate the San Diego airport to a roomier site outside the city center have failed and prospects for future success are not good.

Will the airport be able to cope with the thousands more convention delegates arriving for exhibition openings? Sainz admits that Convention Center officials--and meeting planners--are concerned.

“The airport has been traditionally one of our city’s Achilles’ heels,” Sainz said. “We overcome it time after time again on our strengths. Will it eventually limit our growth potential? That remains to be seen. But right now it is an incredibly important concern to the convention industry.”

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Convention Space

Here is a sampling of some of the largest planned or existing convention centers in the United States. Many venues are adding space to keep up with rising demand.

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Total sq. ft. Expansion City (millions) completion Chicago 2.2 * Orlando, Fla. 2.1 2003 Las Vegas 2.0 2001 Atlanta 1.4 2002 Kissimee, Fla. 1.0 2003 Anaheim 0.8 2000 New York 0.8 * San Francisco 0.7 2003 Los Angeles 0.7 * San Diego 0.6 2001

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* No expansion underway

Source: Tradeshow Week

DEVELOPMENT DELAYS

Work on a San Diego ballpark and a library is in limbo. A1

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San Diego Suites

Hyatt Manchester Grand

Le Meridien

Gaslamp Hilton

AmeriSuites

Westin Parc

Shipyard site