Hotel Wave Hits Coastal Southland

At the Surf & Sand Resort in Laguna Beach--where every room fronts the ocean, the pool and spa sit on the seashore and rates start at $375 per night--general manager Blaise Bartell is guarding what has long been a top attraction in the luxury hotel market.

If not for the unusual number of high-end hotels being developed up and down Southern California’s coast, Bartell probably would not be spending millions in upgrades, from pillow-top mattresses to a new $1.5-million spa.

But all around him, new competitors are looming. By next summer, more than 4,200 new hotel rooms will be open in Orange and San Diego counties, with nearly half falling in the upscale category--$250 or more per night.

“Bottom line is we have to spend every penny we can right now just to stay in the game,” Bartell said of the improvements that so far have cost about $6 million. “We simply do not have a choice.”

The building boom is an unprecedented expansion of Southern California’s beach resort industry. Although an icon of movies and the inspiration for the “surf” music of the 1960s, the Southland’s beaches never have been in the same league with such elegant tourist destinations as Waikiki, Miami Beach or the Hamptons.

That perception soon could change, especially along the 100-mile stretch of coast south of Los Angeles.

When the St. Regis Monarch Beach Resort opened last summer in Dana Point, it broke a 10-year dry spell in luxury hotel development. By this time next year, 27 more upscale hotel properties either will be open or under construction.

And while most of these future resorts are aimed at Southern Californians looking for deluxe weekend escapes, some believe the new hotels will strengthen the region’s appeal as a first-class resort destination. State tourism officials already plan to highlight the area in advertising campaigns next year, touting the development along Southern California’s “new Riviera.”

“Suddenly, everyone will be marketing Southern California’s luxury beach resorts and there’ll be a buzz about the area like we’ve never experienced before,” predicted John Dravinski, general manager of the Ritz-Carlton in Laguna Niguel. “It’ll be like a siren going off, instead of a little bell.”

There is plenty of skepticism about how well the market will manage such a rapid growth spurt, as luxury resort vacations aren’t likely to supplant Disneyland and Hollywood as the region’s top tourist draws. But developers are banking on baby boomers to keep doling out their discretionary income on lavish vacations--despite the cloudy economy and overall travel downturn. They hope the surge in new resorts will lure more visitors to the coast for longer stretches, especially if travelers are looking for respites closer to home.

In the meantime, though, hotel operators are scrambling to spruce up their properties, with several planning to complete upgrades before year’s end in an attempt to keep guests from booking at the newer properties.

The Laguna Cliffs Marriott Resort at Dana Point, perched on a bluff above Dana Point Harbor, recently finished a $7.5-million renovation that included room improvements and expansion of meeting facilities. The Inn at Laguna, a 70-room oceanfront boutique hotel, spent $2 million on room upgrades and landscaping.

Even the Ritz-Carlton, which opened in 1984 and is largely credited with enhancing south Orange County’s beach resort status, is polishing itself in anticipation of the newcomers. Dravinski said the hotel is spending about $30 million to expand the fitness and massage center, build a new bar with ocean views and rewire all 393 rooms. Even so, he expects to lose about 10% of his business--at least in the beginning--to the “curiosity factor” of visitors wanting to try the newer hotels.

“These new places have everything built right in, right from the start,” Dravinski said. “They have all the bells and whistles. So what do we do? We improve ourselves inside and out.”

What seems like a sudden rush to build is actually the result of several years of planning by developers, who began sizing up the healthy Southern California hotel market in the mid- to late 1990s. They saw that a large percentage of guests were Southern Californians willing to treat themselves to weekend retreats at pricey hotel-spas. By 2000, a strong economy was powering an even stronger travel industry, and the cost of financing had dropped enough to encourage developers to make their move.

“Everything looked very good, very promising,” said Alan X. Reay, president of Atlas Hospitality Group in Costa Mesa, a consulting firm that tracks hotel development in Southern California. “It was a developers’ dream.”

The resorts are not saying yet how they plan to try to stand out from this thoroughbred pack, although all are boasting first-class service. But the question remains: How can the elite class of luxury-seeking tourists and business travelers keep all these oceanfront resorts afloat?

Many say the weak economy, a falloff in business travel that is slow to rebound and the 25% drop in occupancy rates in the upscale market since 9/11 will work against the high-end hotel market.

“You can’t possibly absorb that number of rooms in such a weak market, in such a short amount of time,” said Joel Hiser, president of Horwath Hospitality Investment Advisors, a lodging real estate and consulting firm in San Francisco.

“I don’t see any property opening up down there and doing extremely well, not now, not for a long while,” Hiser said. “I don’t care how long it’s been since you had a five-star resort debut.”

Others say there has been such a shortage of luxury resorts in Southern California, especially along the coast, that an increase in supply of as much as 5% easily could be absorbed--but only in the right economy. The number of rooms being developed amounts to about a 3% increase in supply, which experts say is realistic given the growth of the region and upscale hotels’ average 70% to 80% occupancy rates.

The new resort properties are counting on more than 60% of their guests being Southern Californians, with visitors from New York, the Midwest and overseas as their secondary markets.

All also are counting on meetings and conventions to boost weekday occupancies and building larger facilities for them than the area’s existing hotels can offer. The Hyatt Regency Huntington Beach Resort & Spa--designed to simulate an Andalusian villa with four ocean-view courtyards and Mediterranean-style gardens and fountains--will have 52,000 square feet for meetings and events, with the aim of becoming the convention center of the coast.

“The question isn’t going to be demand, because the demand for this type of hotel is there,” Reay said. “The question is going to be room rates. Can they generate the kind of rates they need? I don’t know. It’s a high-risk proposition.”

To calculate the rates a new hotel needs to charge to start earning a profit, the industry uses a general rule of 0.1% of the building costs per room.

For example, development costs for the 275-room Laguna Beach Colony, which is scheduled to open in December, amount to roughly $509,000 per room. Therefore the hotel would need to charge at least $509 per room per night, Reay said. (The hotel says room rates will start at $375 a night but it expects to be able to charge $500 within two years.)

But hotel room revenue in the United States is expected to fall 0.7% this year, according to a recent forecast by PricewaterhouseCoopers, which revised an earlier estimate that revenue would rise 3% in 2002.

Either way, the impending competition is nerve-racking for Bartell, who for years has found security in the luxury hotel market by touting the 55-year-old Surf & Sand as a “wiggle-your-toes-in-the-sand” kind of place, a more laid-back alternative to the Ritz-Carlton in adjacent Laguna Niguel but with the same level of service. In Laguna Beach, Bartell said, the resort always has enjoyed top-tier status.

“You can’t get any closer to the ocean without getting wet,” he likes to say.

And yet threatening to take away some of its business is The Lodge at Torrey Pines in La Jolla, a quiet 175-room Craftsman-style resort nestled among pines and a municipal golf course that opened last month with rates for double rooms starting at $450 per night. The Hyatt Regency Huntington Beach, with 519 rooms starting at $375 per night, is scheduled to open later this year on Pacific Coast Highway.

The Laguna Beach Colony, which perhaps poses the biggest threat to older resorts because of its location (on the ocean in South Laguna), size (30 acres) and amenities (20,000-square-foot spa and 12,000 square feet of meeting space), soon will follow. Billing itself as Laguna’s masterpiece by the sea, the cottage-style hotel will include 24 suites, 57 concierge-level guest rooms, four bungalows and indoor-outdoor spa treatment rooms strung along a 55-foot bluff and surrounded by public parkland.

But for some veteran resort-goers, the new hotels may not be too enticing. At the Ritz-Carlton, one couple said their third visit to the Laguna Niguel property made them loyal customers.

“Why mess with a sure thing?” said Evelyn Marks of Santa Barbara, who was taking a three-day break at the Ritz with her husband, Ross, while attending a wedding in Orange County. “We’ll never go anywhere else. If those other places take business away, it’ll just mean more room here for us.”