Number of OC Projects Shrinks, but Demand Seen Likely to Spur Growth Soon
The number of hotel rooms planned for Orange County has decreased by 25% in the past year, compared with 11% for Southern California overall,but that doesn’t mean the news is all bad for the local tourism industry.
A report released last month by Costa Mesa-based Atlas Hospitality Group shows 33 hotel projects in the local pipeline, compared with 44 a year ago. The drop reflects a handful of completions and the dropping of several plans that have gone by the wayside.
Los Angeles has also suffered a decline of 24%, to 38 current projects, while San Diego has 51 planned hotels, a 13.3% increase from 1999.
Those numbers don’t appear to bode well for an OC market expecting an increase in visitors of anywhere from 15% to 25% in the next two years, especially given the tight financial markets, climbing interest rates and rising land costs that have been putting the brakes on new development. But a closer look paints a slightly more encouraging picture.
For one, at least a dozen projects included in the report are under construction or nearing completion. Garden Grove’s Crowne Plaza Hotel will open next week, and a Homewood Suites on the same parcel at Chapman Avenue and Harbor Boulevard is scheduled to open Nov. 1. They are part of a six-hotel redevelopment deal with the city that also saw two,the Hilton Garden Inn and Hampton Inn & Suites,open last year. The last two hotels on the parcel,an Embassy Suites and a Marriott Suites,are under construction and will open in 2001.
Elsewhere in the city, a 103-room Holiday Inn Express broke ground in August and at least one other developer is working with Garden Grove officials to build another hotel in that city.
In Anaheim, Tarsadia Hotels’ Portofino Inn & Suites opened last month, and several others will open in the first half of next year: Disney’s Grand Californian, which will open Jan. 2; the Anabella Hotel on Katella Avenue and Disney Way, scheduled to open in February; and a Holiday Inn and a Staybridge Suites on Manchester Way near Katella Avenue slated for completion by summer. Also, a Country Inn and Suites by Ayres is under construction across the street from the Arrowhead Pond.
The dearth of new projects entering the construction pipeline is likely to change once the Disney expansion and the remodeling of the Convention Center are complete.
The expected growth in visitors from those projects could boost occupancy at Anaheim hotels to as high as 85%,about a 12 percentage-point increase over the first seven months of this year,according to a report on projected bed tax revenue released by the city last month. If occupancy jumps, room rates surely will, too,a scenario likely to spur renewed interest from lenders.
Bruce Baltin, senior vice president of the LA office of PKF Consulting, has long held that even if everything in the pipeline for Anaheim opened next year, more hotel rooms would be needed. He believes the demand will be there.
That would be a boon to expansion projects like those at the Anaheim Marriott or West Coast Anaheim that have been waiting in the wings.
“They’re waiting to see what happens when the (Disney) park opens,” Baltin said.
The hotel owners are being cautious because many remember the overbuilding spree of the early ’80s. But Jim Burba, a local hospitality consultant, believes there is enough potential hotel demand coming to the area to stave off any worries of oversupply for a while.
To be sure, some projects in the pipeline may never come to fruition. At least two in Anaheim are on hold due to financial difficulties. Others, like the 1,000-plus rooms slated for Pointe Anaheim, face complex ownership and financial hurdles that could see them delayed beyond 2002. And the ambitious Sportstown complex,once highly touted as the anchor to retail, entertainment and hotel development around Edison International Field, is not even included in the Atlas report.
But many industry observers believe there will be a “second wave” of hotel development once there is a better sense of what kind of demand the new theme park and convention facilities create.
“You probably won’t see a lot of new supply in 2002, but will in 2003,” Baltin said. “There will probably be a second wave of development.”
Some of that second wave may come as the result of Disney’s third Anaheim theme park, announced earlier this summer. When that expansion was announced, Disney officials said a hotel had not been ruled out as part of the mix. And because the so-called “third gate” will be built in phases,developers may not have to wait as long for a payback on their investment.
Elsewhere, while Los Angeles remains fearful of losing convention business to both OC and San Diego due to its lackluster hotel growth, Orange County probably need not worry too much in the immediate future.
Though San Diego was the lone Southland market with a marked increase in planned hotels, many of those projects can be found in the city’s Gaslamp District and East Village redevelopment areas. Those developments surround San Diego’s Convention Center expansion and new baseball park, both of which began construction after Anaheim’s remake was well under way. But at least five of those proposed hotels are struggling to get off the ground, too, with no definite dates for construction to begin.
What’s more, though San Diego’s Convention Center expansion is on track for completion next September, the baseball park remains embroiled in controversy that has made it difficult for the city to sell tax-exempt bonds to finance its portion of that project. Last month, the Padres baseball team threatened to halt construction on the stadium, due to open in 2002, if financing is not in place soon. That would likely put a damper on other development in the district. n
