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Thursday, Jul 18, 2024

Signs of Life for Hotel Sector

There are encouraging signs of activity among some of Orange County’s top hospitality companies, although the pandemic continues to play havoc with the industry, leading to at least one notable area coastal resort falling behind on its mortgage.

Laguna Beach-based Montage International is continuing expansion plans for its newer Pendry brand, recently acquiring a well-known Chicago building along Michigan Ave., with plans to rebrand the 37-story tower, a one-time Hard Rock Hotel.

In another notable move, R.D. Olson Development recently took the wraps off a new hotel it built in Glendale, while also breaking ground on a new project in Westminster—the first major hotel to start work in OC since the onset of the pandemic.

These moves, along with $216 million purchase of the Newport Beach Marriott Hotel & Spa last week, suggest a sense of optimism in the ability of the hospitality industry to rebound after a rough 2020 for the sector (see page 1).

“We are seeing improved activity on the hotel side on a couple different fronts as consumer confidence continues to improve,” said Bill Wilhelm, president of Irvine’s R.D. Olson Construction.

“New construction projects are still few and far between, but we are lucky to have strong ongoing business.”

Pendry Growth

Montage has been steadily growing its Pendry brand since its debut in San Diego in 2017, opening seven properties in that time.

It’s set to open the eighth location in Chicago after acquiring an existing Windy City property known as the Carbide & Carbon Building.

Plans are underway to rebrand the 364-room site, which has operated since 2018 as the St. Jane Hotel, under the Pendry flag, which is headed by Montage Founder Alan Fuerstman’s son, Michael Fuerstman.

The newer, boutique-style hotel brand is more design forward, while still incorporating the hands-on service that Montage was built on, with Pendry skewing a bit younger in terms of market share.

“There’s tremendous growth on the horizon with both Pendry and Montage, with plans to open another six or seven hotels in the next year and a half,” Alan Fuerstman said in September, after the local hotel veteran was chosen as an Excellence in Entrepreneurship honoree by the Business Journal.

Montage acquired the Chicago hotel, located in the city’s downtown Loop neighborhood, for an undisclosed price from Becker Ventures.

The Art Deco-styled building was built in 1929 and designated a Chicago landmark in 1996. Becker converted the one-time office into a Hard Rock Hotel in 2004. It rebranded more recently as the St. Jane Hotel; the sellers reportedly took out a $75 million mortgage to finance the latest upgrades as part of the rebranding.

The Pendry Chicago is slated to debut next spring.

Moving forward, Pendry growth is expected to outpace that of the Montage, with three Pendrys opening to each Montage.

“More markets can support the Pendry brand,” Alan Fuerstman said.

Six months after the coronavirus pandemic hit and forced hotel closures and staff furloughs, Montage is seeing demand pick back up, with all but one hotel in Maui open.

“We have seen a much more positive outcome as of late,” said Fuerstman, adding that the company is “spending an incredible amount of energy on the safety and wellness of associates and guests to make sure we are operating in the safest fashion.”

Olson Ongoing

For R.D. Olson Construction, the Irvine-based affiliate of Bob Olson’s R.D. Olson Development in Newport Beach, activity has picked up over the past two months, especially for coastal properties able to capture local business.

“Hotels that are well positioned are faring much better, with a bulk of business coming from leisure travelers looking to stay close to where they live,” said Wilhelm, pointing to R.D. Olson’s Lido House in Newport Beach as an example.

“The staycation resort experience will survive these times relatively well, while business travel will continue to be sluggish,” said Wilhelm.

Wilhelm points to a “strong customer base” that has kept business steady for R.D. Olson Construction, the 13th largest construction firm in Orange County, with $231 million in 2019 revenue, up 12% from the year prior.

The company recently delivered the 145-room Glendale Marriott Residence Inn, a mission-style property located close to Griffith Park and Hollywood. The project is the second in the area the construction company built of late, joining the AC Hotel by Marriott in Beverly Hills, an 11-story, 176-room luxury hotel that opened earlier this year. It’s run by Interstate Hotels & Resorts.

The Glendale hotel runs some 190,000-square feet and is five-stories. It is owned by R.D. Olson Development.

While the pandemic has caused many developers to hit the pause button on new projects, especially with obtaining financing a challenge, R.D. Olson said it still has several hospitality projects in the works.

Last week it broke ground on a hotel included as part of a larger redevelopment project in Westminster’s Little Saigon District.

R.D. Olson Construction is behind the buildout of Bolsa Row, which will include a 200-unit apartment complex, stores, restaurants and the city’s first full-service and four-star hotel by Wyndham Hotels and Resorts.

Rendering: Bolsa Row

The project is backed by Bac Pham and Joann Pham; R.D. Olson Development is not involved.

Construction is slated to wrap by the end of next year.

Though there’s been positive momentum as of late, Wilhelm still expects 2020 business to fall well short of last year, with a hope 2021 can return to 2019 levels.

“If anything, 2020 was a year of repositioning and strengthening our foundation to allow us to really capitalize in 2021,” said Wilhelm.

Surf City Loan

Not all news in the local hospitality sector is positive.

Multiple credit ratings agencies point to the Hyatt Regency Huntington Beach Resort & Spa falling behind on payments for its nearly $200 million mortgage.

The 517-key Hyatt is OC’s No 9 by room count, it also counts some 112,000 square feet of meeting space, including a 20,000-square-foot grand ballroom and 40,000 square feet of outdoor event space. It also has six restaurants and a 20,000-square foot spa.

The Robert Mayer Corp.-owned property’s mortgage is tied to a variety of Citigroup-overseen CMBS loans, according to ratings agencies.

Its loan for the property was transferred to special servicing in July “after requesting a modification in relation to the coronavirus outbreak,” according to a Moody’s Investor Services report in late September.

The property temporarily closed in March due to the pandemic but has since re-opened.

“The lender is currently in the process of documenting a forbearance agreement with borrower which will include a 3-month P&I deferment and a 9-month [interest-only] period,” Moody’s said at the end of September.

It’s one of the larger newly delinquent CMBS loans, according to a late October report from Fitch Ratings Inc.

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