Irvine-based R.D. Olson Development has been given the go-ahead for a pair of hotels to be built in Tustin, next to the Costa Mesa (55) Freeway and Edinger Avenue.
Tustin’s city council this month approved a deal to sell Olson three parcels totaling about 7.5 acres of vacant, city-owned property. The two hotels would be designed for business travelers and would combine for 300 rooms.
Olson is expected to pay about $8.7 million for the land, or slightly less than $30 per square foot, according to city documents.
Plans call for a six-story, 160-room Hilton Garden Inn and a four-story, 140-room Hilton Homewood Suites at the site, which is located near a Micro Center electronics store.
The hotels are expected to include enough meeting space to hold about 200 people and include about 16,000 square feet of shops and restaurants.
The entire development is expected to cost about $62 million.
The hotel project would be the first in Tustin intended primarily for business and extended-stay travelers in Tustin, city officials said last week.
From a financial standpoint, the city has long needed the hotels, according to Robert Olson, chief executive of the hotel developer.
“Tustin is creating hotel demand, but not capturing it,” Olson said. “The city should be interested in capturing their share.”
In the area around John Wayne Airport, hotels targeting business travelers are averaging 90% capacity and reservations need to be booked up to one month in advance, city officials said last week.
“There is a demand in Tustin and the surrounding area for hotels catering to the business traveler,” according to city spokesperson Lisa Woolery.
Future Plans
The hotels are expected to break ground by the end of next year at the latest, according to Olson. The project should take about a year to complete.
Olson said last week that he’s currently working on getting investment partners lined up for the projects. He plans to retain an ownership stake once the hotels are completed.
Tustin’s studies project that the two hotels will be at about 75% capacity in the first few years and then booked out at 80% or more going forward.
“We’re in the early stages (of a recovery) right now,” Olson said. “We’re in an environment where (local) hotels are seeing recovery, with very little new lodging supply in the airport area the past few years.”
There hasn’t been a hotel project targeting business travelers built in the area around John Wayne Airport since early last decade, according to industry data.
Olson Development has built hotels throughout Southern California and in Hawaii. It’s now working on a 150-room Residence Inn by Marriot in San Juan Capistrano.
Construction costs are down about 30% from the peak of the market—another reason building now makes sense if the location’s right, according to Olson.
“I’d rather be building now, than opening (a new hotel) here in 2008,” he said.
Bed Tax
Tustin currently expects the development to generate about $700,000 annually based on its current hotel bed-tax rate.
Changes being considered at City Hall could increase those figures.
Tustin’s current bed tax is 6%—far and away the lowest rate in Orange County, according to officials. Most other cities in the county range from 10% to 12%.
Anaheim and Garden Grove, whose hotels are geared toward tourists and convention-goers, have the highest rates in the county, at 15% and 13%.
Olson said he supports increasing the bed tax in Tustin to 10%, “which would still be on the low side.”
Tustin’s bed tax hasn’t been examined in many years because the hotel industry in Tustin has been almost nonexistent, city officials said.
The city is considering a hearing in the near future to discuss the bed tax “to compensate for services such as police and infrastructure that will be required to meet the needs of hotel visitors,” Woolery said.
Olson’s project has been in the works since late last year. Initially, a Marriott Residence Inn was being considered for the site along with a Hilton Garden Inn, but a Hilton Homewood Suites now appears to be more likely.
Keeping both hotels under the same Hilton flag should help cut some costs, according to Olson.
The latest project comes about three years after Olson announced plans to build a trio of hotels at Tustin’s Legacy Park, the 820-acre redevelopment of part of the city’s former Marine base.
Those hotels were put on the back burner after Legacy Park’s former master developers opted to postpone, and then exit, the project.
Olson said he’s still interested in building at Tustin Legacy once the project gets revived.
