The once-buoyant enthusiasm of hotel developers anxious to ride the coattails of a remodeled Convention Center and Disney’s California Adventure has waned in the wake of stock market turmoil, interest rate hikes, more stringent financing requirements and rising construction costs.
Although Orange County properties like Disney’s California Adventure and Pacific Hospitality’s Crowne Plaza are under construction, others have been cancelled, some have been put on hold, and some have been scaled back. And some developers are finding lagging interest at major hotel companies for taking on new construction projects.
Greg Currens, vice president of AMH Corp., Newport Beach, knows the vagaries of the current market only too well. AMH, developer of the Aliso Viejo Golf Club and Resort, has been in search of a hotel partner for the proposed resort and conference center for a couple of years. Though the project is a joint venture with Dallas-based Club Corp, an $800 million operator of golf and conference resorts, so far the search hasn’t produced results.
“We’re talking to a couple of operators,” Currens said, “but the majority don’t want to build (a hotel) today they want to manage it. There’s less risk.”
Building Costs Rule
“It has nothing to do with who you are or what feasibility studies say,” said Currens. “It still comes down to the cost to build (the hotel).”
And with some lenders demanding as much as 50% equity, there’s more profit in management or in limited-service hotels than in full-service properties.
The Aliso Viejo Resort was once envisioned as a 927-room, two-phase hotel with more than 30,000 square feet of meeting space. But the final configuration could be quite different, depending on the management deal.
“Everything is on the table,” Currens said.
In Irvine, grading is under way for a new Ritz-Carlton at Park Place, but the property is not expected to open until late 2002. Though the property is fully entitled for a hotel, sources said financing was not complete as of April.
And further up the coast, the Hilton Waterfront expansion, now dubbed the Grand Coast Resort and Spa, has been delayed repeatedly. Financing for that 500-room companion hotel reportedly is complete, and construction is scheduled to begin in June.
Anaheim Numbers Dwindle
In Anaheim, which as recently as last summer had as many as 5,000 new rooms on the drawing boards, only Disney’s Grand Californian is anywhere near completion. There’s plenty of construction around Disneyland, but much of that is renovation work. Among those projects:
n Tarsadia Hotels has torn up 247 rooms of the Jolly Roger Hotel and is converting it to a new property to be called the Portofino. Eventually, the remaining 57 Jolly Roger rooms will be razed to make way for a Westin or Sheraton, but plans for that project are not yet finalized.
n The Magic Lamp project, which encompasses land now occupied by three motels at the edge of the Disneyland Resort at Katella Avenue and the former West Street, now renamed Disneyland Drive, was once envisioned as a two-phase 900-room resort property. But now the project encompasses a 358-room resort on 7 acres, according to Paul Sanford, spokesperson for FJS Inc., the property’s owner. Sanford said the new mission-style resort will be called the Anabella and will include oversize rooms, a business center, spa and swimming pools. A source said the project is estimated at $8 million to $12 million and that the owners are “close” to finalizing financial arrangements.
Projects on hold include the conversion of the 123-room Convention Center Inn to a 351-room, five-story motel,the property now is said to be on the market for $11 million. Another Holiday Inn project is also in limbo, though Bass Hotels is proceeding with a Holiday Inn and Staybridge Suites on Manchester Avenue.
Other projects on hold include expansions at existing hotels such as the Anaheim Marriott and West Coast Anaheim, partly due to soft occupancy in Anaheim the past couple of years and partly the result of a “wait-and-see” attitude on the part of owners who want to gauge increased demand in Anaheim after the new theme park and Convention Center are fully open next year.
Tom Wood, a spokesman for the Anaheim city manager’s office, said there is “great interest” in several parcels in the resort area from hoteliers,once they assess the demand created by the completed district.
Meanwhile, the owners of the property occupied by the existing Holiday Inn Anaheim at the Park have put the property on the market, but plans for the parcel are unclear. The broker handling the deal declined to provide details for this story.
Redevelopment Projects A Go
Hotels in Garden Grove’s redevelopment area, however,just a mile down the road from the Convention Center complex,have been going up more or less on schedule, partly due to the land deals the city made with the developers to jump-start the redevelopment area.
A Hilton Garden Inn and Hampton Inn opened last year, and a Homewood Suites will open this fall. The Crowne Plaza, a 384-plus room property under construction, is slated for completion late this year.
Question marks in the area long have revolved around the two properties being developed by Newport Beach-based Landmark Cos. One of those, an estimated $20 million Embassy Suites, was one of the last deals closed before last year’s Promus-Hilton merger and was unaffected by the merger, according to a Landmark official. That hotel is under construction.
Another Landmark project across the street, slated to be a 744-room Marriott Renaissance, has not yet been started. But Landmark said the financing is complete and grading will begin this week.
What may end up happening is that Orange County will see more franchise and limited-service products ,which have lower construction costs,come to market as a result of today’s tight financing.
“The (stock) market tends to be ignorant of the dynamics of the hotel market,” said one source who asked not to be identified. “But Wall Street loves the franchise model, because it’s more profitable.”
