VALLEY / VENTURA COUNTY SPORTS
A dearth of financing that has stalled many proposed hotels near Disneyland is also hampering development elsewhere in Southern California as rising land and construction costs and the prospect of overbuilding scare lenders, hotel experts say.
Only four new Orange County hotels will open this year, despite Disneyland and Anaheim Convention Center expansions that will greatly increase demand when they are completed next year, according to a report released Monday by Atlas Hotel Group, a Costa Mesa broker.
The 32 hotels that are planned or being built in Orange County are 27% fewer than were in the pipeline last year, said Alan Reay, president of Atlas. And, he said, many of those planned won’t be completed, despite the hopes of developers and cities.
In Los Angeles County, tourism officials are warning that the stock of hotels there isn’t growing fast enough to meet burgeoning demand, and they worry that conventions will be lost to Orange and San Diego counties.
Projects in development or construction there are down about 25% from last year and now total 38, the Atlas study found.
Experts say it’s the same story across the country. Several recent studies have foreseen weak demand nationally for hotels. Major lenders remember the debacle in the 1980s when overbuilding spurred by easy money toppled many developers and projects into insolvency.
Meantime, land prices and contractors’ bids have surged higher because of the strong economy.
If a proposed hotel “is not a compelling story, if it’s just a yarn, then it just sits these days,” said Donald Wise of Wise Hotel Investments in Corona del Mar, another broker.
Wise and Reay said lenders typically want developers to put up at least 35% of construction costs themselves, compared with 15% to 20% a few years ago.
In San Diego County, where rates and occupancies have been stronger, the hotel development picture is slightly brighter. The Atlas report ranked that county No. 1 in Southern California for hotel development, with 51 new projects in the pipeline, up 13% from last year.
The Atlas report showed Los Angeles County edging Orange County in the number of new hotel rooms--937 to 831--set to enter the market this year. But San Diego County topped them both with nearly 1,200 new rooms expected by year’s end.
In Orange County, two major luxury hotels are being built near the Ritz-Carlton in Dana Point, and Disney will open its high-end Grand Californian in January as part of its Disneyland expansion.
Orange County also has the distinction of having the largest new California hotel of the this year, a Crowne Plaza in Garden Grove with 384 rooms that is to open next month. It is among six new hotels that have been developed with a major subsidy provide by the city’s redevelopment agency: free land.
But lenders skeptical that vacationers will pay top dollar for non-Disney hotel rooms near Disneyland have refused so far to finance projects like Pointe Anaheim, a development that would include 1,050 full-service hotel rooms across Harbor Boulevard from Disneyland.
“The lenders see a lot of risk,” said Elliot Eichner, a Los Angeles investment banker who tried to finance Pointe Anaheim. To work out, the project needs to charge $140 to $165 a day for its rooms, Eichner said, “and a lot of people had a tough time believing that in the Anaheim market, we could hit that.”
Reay believes room rates are due for a sharp uptick in Orange and Los Angeles counties because so few new properties are being built. That will be good for owners of existing hotels, though tough on travelers’ wallets and will eventually lead to a new round of financing for hotel construction, he said.
But for now, things remain slow. Los Angeles County’s supply of hotel rooms, at roughly 94,000, has seen average annual growth of no more than 0.5% in each of the last seven years while business and leisure travel has surged.
In downtown Los Angeles, occupancies jumped from a 13-year low of 47% in 1993 to about 70% last year. Yet downtown, with just under 5,000 hotel rooms, has had no new guest accommodations since 1993, while annual attendance at the Convention Center--the area’s primary visitor magnet--has risen steadily.
“Supply has certainly not been keeping pace with demand,” said Bruce Baltin, senior vice president of PKF Consulting hospitality analysts in Los Angeles. “Major tour operators are having a tough time getting rooms in L.A.”
The Los Angeles City Council is mulling a proposal by the owners of Staples Center to help pay for construction of a 1,800-room hotel across from the arena and one block north of the convention center.
But for now, Los Angeles could lose convention business to Orange and San Diego counties.
When the Anaheim Convention Center’s $177-million expansion is completed by the end of this year, it will be 40% bigger than previously, with 815,000 square feet of exhibition space.
What’s more, the new center is just a short walk from major hotels and from perennial tourist favorite Disneyland, which, itself, is nearing completion on an expansion that will add a 55-acre California-themed amusement park.
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Times correspondent Stephen Gregory contributed to this story.
