A sizzling summer for Anaheim hotels is getting hotter in more ways than one.
Room rates and occupancy levels are healthy, according to recent data from CBRE Hotels, and the city’s two largest trade shows officially re-upped at Anaheim Convention Center for several years apiece, according to destination marketer Visit Anaheim.
However, a less welcoming city council and a November ballot measure linking a minimum hourly wage to hotel incentives are bringing simmering tensions to a boil.
At stake is whether developers will pour $1.1 billion into three new hotels; two other projects valued at $550 million are already underway but could also be affected.
Disneyland Resort said its part of the overall investment, a planned $625 million luxury hotel, is on hold and that it wants out of deals with the city covering bed and gate taxes. Other area hotel developers are also expressing doubts about their projects.
To be sure, hotel development near the convention center and Disneyland remains strong and spreads to the rest of the city and neighboring areas. Anaheim has touted $4 billion in leisure and hospitality investments overall.
Resort Revenue
Anaheim’s 83% hotel occupancy in the first half of the year was the highest of seven OC submarkets, CBRE said. Average daily rates of $199 and revenue per available room of $166 over those six months were up 6% to 7%, respectively. Only the coastal submarkets commanded higher rates.
The city has 20,000 hotel rooms; its hotels paid $150 million from a 15% transit occupancy tax—TOT or “bed” tax—on rooms sold in fiscal year 2017, and Anaheim has adopted projections showing that amount will rise another $6 million in each of the next two years.
Most of that growth would come from the 1,100-acre Anaheim Resort district, an area that surrounds the resort and convention center. About 84% of Anaheim’s rooms and about half of its 146 hotels are in the district.
Room Rates
Development also remains strong, much of it driven by Star Wars: Galaxy’s Edge, which is scheduled to open next summer in a 14-acre area at the park, and a 200,000-square-foot convention center expansion that opened last fall.
This month, OC’s two largest trade shows by attendance—National Association of Music Merchants (NAMM) and Natural Products Expo West (NAPEW)—booked their spots at the center through 2023 and 2022, respectively.
NAMM, which is the convention center’s largest show every year, attracted 115,000 attendees in January, up 7% from a year earlier. NAPEW, the second largest show at the center, brought in 85,000 in March, up more than 8%.
Area construction continues to boom, as 26 hotels with 7,600 rooms are planned or being built in the city and next-door neighbor Garden Grove, according to consultant-broker Atlas Hospitality Group in Irvine (see chart, this page).
That’s 36% of the 72 hotels and 58% of 13,150 rooms planned or being built countywide, according to Atlas.
Anaheim-area projects include several high-end and boutique names, such as Hyatt Regency, Kimpton and Le Méridien. Prominent projects in the resort district include:
• The high-end Disney hotel on Disneyland Drive west of its parks.
• Affiliates of Wincome Group have one under construction near the convention center and one in planning east of Harbor Boulevard from Disney.
• A partnership of O’Connell Hotels & Hospitality in Anaheim and Orange-based Prospera Hotels is building one hotel and plans a second near GardenWalk, a shopping and restaurant center.
The five district hotels would combine for 2,800 rooms and an investment, including land, topping $1.65 billion, according to Business Journal analysis.
Interesting Times
“Our first hotel is under construction,” said Bill O’Connell, co-developer with Ajesh Patel of the GardenWalk hotel. “Our second is in jeopardy.”
Even though the economy is going great, O’Connell said Anaheim’s political climate has “a bad atmosphere.”
“Some of the politicians are anti-Disney, feeding into union discontent,” said O’Connell, who’s lived in Anaheim for 50 years. “I’ve never seen anything like it.”
Following public pressure—including planned protests and a study released this past spring on wages paid at the parks—Disneyland Resort raised pay for about a third of its park workers. A city ballot initiative in November sets an $18 per hour minimum wage for workers at hotels getting bed tax rebates starting Jan. 1, 2022, a graduated increase from $15 per hour starting Jan. 1.
Under the 2015 council-approved rebate plan, a AAA four-diamond rated hotel can be reimbursed 70% of the bed tax for 12 to 20 years after it opens. The Disney, Wincome and O’Connell-Prospera hotels have the deal.
The city ended the incentive program in December, Anaheim spokesman Mike Lyster said in an email.
Downtime Disney
Disneyland Resort has said it no longer wants the incentive.
Resort President Josh D’Amaro, the company’s top executive in Anaheim, sent a letter to the city last week seeking to end its rebate agreement and a second involving minimum investments in the resort in exchange for no city tax on park tickets.
“The current level of animus is unprecedented and counterproductive,” D’Amaro wrote. Recent disputes “have become divisive, leading to an unstable business climate and a difficult working relationship with the city.”
He said deals to “create jobs, increase economic activity, and generate significant taxes and other fiscal benefits” in Anaheim “no longer serve the purpose for which they were intended.”
The city council could consider Disney’s request within the next few weeks, Lyster said. If Disney isn’t bound by the agreements anymore, “it’s conceivable” a wage initiative wouldn’t apply to the hotel “but we do not have a definitive legal determination at this time.”
The prior agreements have helped spur Disney to commit more than $1 billion to date, including the Star Wars attraction, a $100 million parking structure and the four-diamond hotel.
Under the deal, the new Disney hotel may have generated $380 million in bed taxes in its first 20 years, of which about $267 million would have been reimbursed to the company.
Location, Location
Disney has said its luxury hotel would have “restaurants opening onto an expansive landscaped plaza … water features [as] a gathering place for guests,” and an “upper-level restaurant and lounge” with views of the nightly fireworks.
The rancor between the city and Disney has devolved into a dispute over the planned hotel’s exact location. Disney wants its hotel 1,000 square feet closer to Downtown Disney. City officials questioned whether the move would affect the rebates.
Whether Disney has decided to cancel the upscale hotel is in question.
Disney said the project is on hold. A high-level Anaheim insider told the Business Journal that Disney won’t build anything less than a four-diamond quality hotel. The source said Disney is also betting the city won’t implement a new tax on park tickets.
Such a tax on Disneyland would require either five votes of the seven-member council or a 55% voter approval in a city-wide ballot.
Two of its three Anaheim hotels are AAA Four Diamond—Disneyland Hotel and Disney’s Grand Californian Hotel & Spa; rooms start at $418 and $470, respectively, a company website said last week. A third, Disney’s Paradise Pier, starts at $269.
Disney declined further comment.
Four More
Wincome is investing more than $225 million to build the Westin Anaheim Resort with 613 rooms and plans to invest $210 million in a second hotel with 580 rooms.
At the time of its 2016 bed tax rebate agreement with Anaheim, the value of the rebate over 20 years for both hotels was about $293 million. Wincome, in a press release this year, said its plans for a second hotel could change based on the outcome of the wage ballot.
Paul Sanford, who is in charge of the projects, declined to comment.
The O’Connell-Prospera partnership is building a 466-room JW Marriott at GardenWalk with an estimated value of $300 million; its second planned project doesn’t have a flag yet but is similar in scale and value, with about 400 rooms.
Its 2013 bed tax rebate deal suggests about $158 million returned to the two hotels over a dozen years.
Luxe Land
Area projects attest to an appetite for higher-end hospitality in the area without bed tax rebates.
A 392-unit time-share project, Westgate Anaheim Gardenwalk, is adjacent to the O’Connell-Prospera development.
Irvine-based developer Greenlaw Partners plans a luxury hotel east of the Santa Ana (5) Freeway on Anaheim Boulevard. The Radisson Blu-flagged property is being drawn at 326 rooms with a rooftop bar, restaurant, spa, meeting space and a parking structure.
In Garden Grove, the Hyatt Regency Orange County will add 800 rooms to its current 650, according to city officials.
Near the Hyatt, three hotels—Kimpton, Le Méridien and an unnamed project—are planned, anchoring a $450 million project on five acres. The three total 769 rooms and 39,000 square feet of meeting space.
A 600-room Nickelodeon-branded hotel is also in planning not far away.
