BY HOWARD FINE
As hotel development in Orange County and the rest of California is winding down, many are in awe of what’s being called “renovation on steroids” in downtown Los Angeles.
Korean Air Lines Co.’s recent announcement that it plans to tear down the aging Wilshire Grand Hotel and replace it with a luxury hotel, office and retail complex is just the latest example of how the $1 billion Los Angeles Convention Center hotel down the street is affecting the downtown hotel market.
Several other downtown hotels have just completed, or are in the midst of, multimillion-dollar renovations, driven in part by next year’s planned opening of a 54-story hotel complex next to the Convention Center.
The 1,001-room hotel will feature both Ritz-Carlton and J.W. Marriott hotels, along with luxury condominiums under the Ritz-Carlton banner. It is affiliated with the L.A. Live complex, a burgeoning entertainment node next to Staples Center.
“Whenever you have a major new hotel coming on the market like this, the older hotels have to step up to renovate,” said Alan Reay, president of Atlas Hospitality Group, a hotel industry consultancy in Irvine.
Among the major renovations in the works are a $40 million makeover for the Westin Bonaventure Hotel, a $9 million to $12 million renovation of the Omni Hotel and an estimated $5 million upgrade for the Hilton Checkers Hotel.
Of course, these all pale next to the plan for the Wilshire Grand, owned by Korean Air, a subsidiary of the South Korean Hanjin Group conglomerate.
The 57-year-old, 896-room hotel could be torn down and replaced with a 40-story luxury tower containing up to 700 rooms and scores of condominiums. The $1 billion project, which has yet to secure city approvals or financing, includes a 60-story office tower and ground-level retail locations. Downtown Los Angeles’ Thomas Properties Group Inc. is the master developer.
Why Now
Korean Air decided to proceed with the project amid one of the worst economies in decades, in part because of next year’s arrival of the Convention Center hotel.
“Korean Air strives to be competitive in any market it enters,” said company spokeswoman Penny Pfaelzer. “The Ritz-Carlton/Marriott is setting the bar higher for the downtown convention hotel market and the Wilshire Grand needs upgrading to remain competitive.”
Pfaelzer said the company had other reasons to proceed now, including having maximum negotiating leverage during what is certain to be a long and complex city approval process. With the economy delaying the $3 billion Grand Avenue project downtown, and other major developments either being postponed or withdrawn, Los Angeles officials are expected to be eager to see the Wilshire Grand project succeed, perhaps by cutting red tape and related fees.
Even so, the new hotel won’t open for another five years, assuming Korean Air and Thomas Properties can get financing. By that time, it is hoped the economy will have turned around and tourism and convention business will have picked up.
In the meantime, the Convention Center hotel is set to open next year, adding 1,001 rooms in a very tough market.
“No question that when those hotels open, revenues for everyone will go down,” Reay said. “It’s happened in San Diego where a new 1,190-room Hilton hotel just opened near the convention center, and it will happen in downtown L.A.”
That’s not the scenario that downtown hotel executives had expected when they planned renovations at the height of the recent economic boom. They anticipated the Conven-tion Center hotel would bring in larger conventions and they wanted to be in prime position to attract convention attendees.
Sheraton’s General Manager Ian Gee said that while he welcomed the Wilshire Grand project, he was a little concerned about the 800 rooms being taken off the market for a few years between the demolishing of the old hotel and the completion of the new site.
“If we get large conventions with 10,000 or 20,000 attendees coming here,as we all hoped to do with the building of that Convention Center hotel,taking those 800 rooms off the market could hinder our ability to house everyone,” he said.
Spread Out Convention Business
But local hotel industry watchers said this likely will not be much of a problem.
“What will happen is just what happens now, which is that if all the downtown hotels are full, they’ll book rooms in Hollywood, on the Westside, out by Universal City or even by LAX,” said Mark Liberman, chief executive of L.A. Inc., formerly the Los Angeles Convention and Visitors Bureau.
For the nine-month period ending March, L.A. Inc. has booked 40 conventions, up from 36 for the comparable nine-month period a year earlier. L.A. Inc. executives note that the year ending last June was a record period for booking conventions.
At the same time, the total number of hotel room stays generated by those 40 conventions is about the same as last year’s 36, according to L.A. Inc.
“In the longer run, (the Convention Center hotel) will increase occupancy at most of the other downtown hotels, assuming that these hotels keep their upgrades moving,” said Bruce Baltin, principal with hotel industry consultancy PKF Consulting Inc. in downtown Los Angeles.
Fine is a staff writer for the Los Angeles Business Journal.
