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Surge of Hotel Development

The four Orange County cities with the heaviest volume of hotel construction are seeing a divergence in the type of properties being built there and the sorts of guests the hotels will target.

Hotel projects made up the largest source of activity taken up by Orange County’s top commercial real estate developers on this week’s Business Journal list. Eight of the 20 ranked companies completed hotels in the past year (see page 14).

The developments include a number of limited-service hotels targeting business travelers and budget-conscious tourists, as well as family-friendly resorts and, most recently, high-end offerings.

Among the latter is Paséa Hotel & Spa, which opened last month in Huntington Beach. The 250-room property on Pacific Coast Highway has room rates at more than $400 and was developed by Irvine-based Pacific Hospitality Group and R.D. Olson Development in Newport Beach.

The project, along with developments in Anaheim, Garden Grove and Irvine, combined for more than 90% of the hotel rooms represented on the list that opened in OC in the past year.

The four cities also have a hotel development pipeline encompassing more than 7,000 rooms, according to city filings, brokerage data and other real estate sources.

Sites in Anaheim, Irvine, Garden Grove and Huntington Beach comprise the bulk of planned hotel development in the county. There were about 6,700 rooms under construction or in the planning phase in the county at the end of last year, according to data from Irvine-based hotel brokerage and consultancy Atlas Hospitality Group Inc.

“There’s an astounding number of new hotels” under way in OC and throughout the state, said Atlas President Alan Reay.

Part of that is the industry playing catchup after a dearth of construction following the Great Recession. Strong industry revenue figures and record pricing of hotel sales also are bringing in developer interest, according to Reay.

Recent industry data suggest the new projects come at a good time in the market.

Average room rates in OC rose 3.2% to $179 in March, according to a recent report by the local office of CBRE Hotels.

The rooms were about 79% occupied, up from 77.9% a year ago, the brokerage report said.

Revenue per available room, or RevPar, was up 4.7% from year-earlier levels. That’s its highest point since the 2007 and 2008 period, Reay said.

Beach, Star Wars

Individual cities are taking unique approaches to hotel development.

Paséa and a planned expansion of the nearby Hilton Waterfront Beach Resort are intended to take advantage of a revitalized tourist and shopping area along Pacific Coast Highway near the Huntington Beach pier.

The area is getting several hundred million dollars’ worth of real estate investments between the recently opened Pacific City development—featuring Paséa, a new shopping center, and an under-construction apartment complex—and Irvine-based Robert Mayer Corp.’s planned 440-room expansion of the Waterfront Beach Resort on a 3.5-acre site next to the existing hotel.

In Anaheim, a multibillion-dollar investment is taking place in the 1,100-acre resorts district that includes Disneyland Resort and Anaheim Convention Center.

Much of that is geared around Star Wars Land, a 14-acre addition to Disneyland Park that’s in the early stages of construction. City officials estimate the project’s cost at $1 billion to $1.5 billion, factoring in additional parking and related infrastructure work that will be needed to handle more park guests.

At least another billion dollars’ worth of hotel investment also is in the works to take advantage of the expected surge in Disneyland guests, city records show.

A total of 856 rooms are under construction among four resort-area hotel projects, which will join the 1,000 rooms in six hotels that have opened since mid-2014, according to city data.

Ten additional hotels have been proposed for the resort area, a handful of which could break ground this year. They include a quartet of luxury properties that are expected to join two existing Disney properties that would be the only hotels in Anaheim to meet AAA’s four-diamond rating and would add nearly 5,000 more rooms.

Today’s resort area includes a mix of 78 luxury, economy and family-friendly hotels totaling about 14,500 rooms, according to the city. The properties hold about 70% of hotel rooms in Anaheim, according to city officials.

Developers targeting the area say they aren’t worried about overbuilding there.

A large portion of the planned projects are upscale hotels replacing outdated properties, said Cory Alder, president of Santa Ana-based developer Nexus Development Corp.

“There could be some impact, but long term, with Disney and Star Wars (Land), we’re still bullish,” he told the Business Journal last month. “A lot of these new hotels are replacing old rooms.”

Nexus has one resort-area project in the early planning stage, a 350-room hotel on a stretch of long-unused land near the intersection of Katella Avenue and the Santa Ana (I-5) Freeway. The six-story, limited-service property would be the first in OC for the builder of hotels, senior living communities, and condos since it built a 215-room Homewood Suites in Anaheim last year.

Water Parks

The city of Garden Grove also is looking to capitalize on the growth of the Anaheim resorts area, but its largest projects are aimed at keeping visitors on-site rather than just providing places to sleep in between trips to Disneyland.

Great Wolf Lodge, a 12-acre project that includes a 603-room hotel and a 3-acre indoor water park, is the largest hotel to open in the past year. The estimated $300 million project, which opened in March, was developed by Loveland, Colo.-based McWhinney Real Estate Services Inc.

The site is about 2 miles south of Disneyland and the Anaheim Convention Center near the intersection of Harbor Boulevard and Lampson Avenue. The family-focused project, though it’s close to those destinations, is designed to keep guests on-site, occupied by a host of game and activity rooms, shops and other amenities. Rooms start at about $300.

A similar project is in the works for a nearby 10-acre site on Harbor Boulevard next to an existing 288-room Sheraton. An affiliate of Arcadia-based developer Kam Sang Co. last month entered negotiations with the city of Garden Grove to build a 600-room Nickelodeon Resort Hotel with a water park on the empty lot.

The project’s costs would largely mirror those of Great Wolf Lodge, the developer said at a city hearing last month. A time frame for the project hasn’t been disclosed.

The developer said its goal is to build a hotel at a level of quality that would entice resort-area visitors.

“We want to balance corporate travelers with Disney tourist travelers,” Kam Sang Co. Senior Vice President Phil Wolfgramm said at the hearing.

Corporate travelers are the primary focus of hotel development taking place in Irvine, where more than 1,000 rooms are under construction or planned, according to Atlas Hospitality data.

Most of the seven hotels—a variety of high-end, boutique, and limited service projects—largely are counting on Irvine’s continued growth into a national corporate hub for their business traveler guests.

The largest project is R.D. Olson Development’s 15-story hotel under way in the Irvine Spectrum next to a 210-room Courtyard by Marriott that the developer opened in 2014.

The 271-room, full-service Irvine Spectrum Marriott at 7905 Gateway Blvd. broke ground in February. Construction is scheduled to be finished in the summer of 2017.

The projects in Irvine are being built on new sites rather than replacing older hotel rooms.

Atlas Hospitality’s Reay said he anticipates that OC’s batch of recently opened and under-construction hotel projects will do well as they’re absorbed into the marketplace.

Projects with longer development timelines could face over-supply issues, especially if another economic downturn occurs, Reay said.

“It’s the question I hear the most: Are we building too many rooms right now?”

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Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.
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