Hotel development in Orange County picked up in the past year.
The number of projects in the pipeline doubled last year, according to Irvine-based Atlas Hospitality Group’s latest development report. About 24 hotels are under development in OC this year, compared to 12 a year ago and 11 in 2005.
The preliminary report by Atlas counted 287 hotel projects in the works in nine Southern California counties, up 56% from last year. Los Angeles has 78 of those,up 59.2% from last year; San Diego has 59, up 25.5% from 2006. San Bernardino County grew the number of projects in the works to 41, up from 24 a year ago. And Riverside County upped its count to 45 projects, 60.7% higher than last year.
While construction costs remain high, industry indicators show the market is ripe for development. During the past 15 years, the average room supply growth was 2.2%, according to Hendersonville, Tenn.-based Smith Travel Research. Last year, that growth was just roughly 1%.
“There’s no question in terms of what we’re seeing in hotel (sales) prices that we’ll see an increase in construction again,” said Atlas President Alan Reay.
The hotel industry is enjoying a boom in profitability, making it a favorite for investors, and giving a boost to the number of hotel projects on tap. In 2006, the industry posted a 17.9% increase in profits nationwide to $144.66 billion, according to Smith Travel Research.
Nationally, hotel construction increased 64% in 2006 from a year earlier, with about 136,500 rooms starting construction, according to PricewaterhouseCoopers. By May, there were 176,000 rooms under construction. PricewaterhouseCoopers forecasts a 1.6% increase in hotel rooms this year and 2.3% next year, the highest two-year levels since 2001.
In May, the Lodging Industry Investment Council projected that a little less than half of the rooms under construction will open in 2009, with about a quarter of them opening in 2010.
The majority of those are not in the top 25 hotel markets as identified by Smith Travel Research. Top markets include Anaheim, Los Angeles-Long Beach, San Diego and San Francisco.
A scarcity of land, higher construction costs and high permitting fees in California contribute to the dearth of projects, Reay said.
Out of town developers experience “sticker shock” when they learn the cost of permitting fees here, he said.
There currently are 55 hotels under construction in the Southland, up 5.8% from a year ago. Total room count is just 4,744, down 42.4% from 8,231 last year, reflecting a trend toward smaller hotels.
Though high construction costs and lengthy planning cycles have tempered the pace of development in this region, the industry’s overall performance bodes well for the immediate future. Forecasters believe that there’s room for more inns,at least for a couple more years.
“The time absolutely is right for development in Southern California if the deals make sense financially,” said Bruce Baltin, senior vice president of PKF Consulting in Los Angeles. “The market is strong and there’s been little development in recent years, so we’re underserved right now.”
So far this year, just 13 hotels have opened in Southern California with a total of 1,130 rooms. The largest was the Courtyard by Marriott in Santa Clarita, with 140 rooms. None were local, the first time OC went without a new hotel in a decade.
Six hotels currently are under construction here, with a total of 1,460 rooms.
The largest hotel going up is the 400-room expansion of the Newport Coast Villas, a timeshare resort. Others include the 285-room Sheraton Garden Grove on Harbor Boulevard, south of the Crowne Plaza; a 242-room Worldmark timeshare resort in Anaheim; the 204-room Inn at Pelican Hill Newport Coast; the 174-room Renaissance Club Sport Aliso Viejo and a 157-room Strand Hotel Huntington Beach.
The Renaissance Club Sport, a combination spa, fitness center and sports complex combined with a hotel, will be the second location for Pleasanton-based Leisure Sports Inc. Irvine-based R.D. Olson is building the hotel as part of Parker Properties LLC’s Town Center development. It’s expected to open next spring.
The oft-delayed Sheraton Garden Grove still is putting up the steel and hopes to open early next year.
Also set for next year is Los Angeles-based CIM Group’s Strand Hotel, part of a $90 million commercial and housing project in Huntington Beach. San Francisco-based Joie de Vivre Hospitality, a boutique hotelier, is set to manage it.
Joie de Vivre also hopes to be part of a planned development in San Clemente. Chief Executive Chip Conley recently told a group of hoteliers in Anaheim that the company expects to have 42 hotels under operation by early next year.
OC has 24 hotels on the books in the planning stage, but a handful of those have languished in that state for close to a decade. Nevertheless, Reay thinks they have a chance of being revived in the current market.
“Developers are an optimistic lot,” he said.
Only about 10% of planned projects ever get built, but it’s not unheard of for projects to be revived after a long dormant period, Reay said.
Several others,most notably the Headlands Resort Dana Point and North Beach Village in San Clemente,still are a couple years off, as are any of the three hotels entitled as part of the Gardenwalk retail and entertainment district under construction in Anaheim. Phase 1 of Gardenwalk will open this fall, but no hotels are expected before 2009 or 2010.
The same is true for the Pacific City project by Makar Properties LLC. The company just began construction of the first housing phase of its $500 million housing, commercial and retail project in Huntington Beach. The 400-room hotel likely won’t open until late 2009 and may include a handful of timeshare units.
Panattoni Development Co. in Irvine expects to open its Pacific Gateway Plaza Hotel,part of a commercial development in Seal Beach,next spring. Panattoni also has entitled a parcel in San Bernardino County for a 200-room hotel.
In Los Angeles, the 876-room Marriott Marquis and 124-room Ritz-Carlton at Anschutz Entertainment Group’s $2.5 billion L.A. Live district, next to the Los Angeles Convention Center, broke ground in May. And the 214-room Montage Hotel & Public Gardens in Beverly Hills is set to open late 2008.
In San Diego, the 420-room Hard Rock Hotel,a partnership between hard Rock and Newport Beach-based Tarsadia Hotel,is opening this fall as the first branded condo-hotel in the area. The Grand Del Mar in North San Diego County, which will include 249 rooms and 31 suites, will open in October.
Bigger projects in the works regionally include the massive 2,000-room Gaylord Entertainment Hotel & Convention Center slated for Chula Vista; the Nickelodeon Resort Hotel San Diego at 650 rooms; the Sunroad Harbor Island Hotel in San Diego at 600 rooms, the proposed 525-room Intercontinental at Lane Field in San Diego; and the 600-room RiverPark Hotel Oxnard.
