Hotel building boom continues in Southern California

By Lori Weisberg

Hotel developers remain bullish on Southern California, with more than 13,000 rooms under construction during 2016, plus 66,000 more in the planning pipeline.

The 12 percent growth in last year’s construction activity over 2015 is documented in a new year-end report compiled by Orange County-based Atlas Hospitality Group.

Los Angeles easily rivals all other counties with 7,239 rooms currently being built, including a 900-room InterContinental nearing completion in downtown L.A. The 73-story high-rise, the largest hotel in the state to begin construction last year, is due to open in the spring.

An InterContinental is also being built in downtown San Diego. At 400 rooms, it is the largest of the eight hotels that were under construction last year in the county. Those properties accounted for 1,444 rooms, a 32 percent jump in volume over the 1,091 rooms  built in 2015.

As evidence of the keen interest in hotel development, there are 679 hotels, with nearly 103,000 rooms statewide, in various stages of planning —  a 39 percent room count increase over 2015.

Credit a six-year, post-recession run-up in room revenues and escalating hotel values, plus a relatively strong economy, for giving lenders and developers the confidence to forge ahead with ambitious projects following a years-long dearth of new supply.

“The reason why did we not see development in 2009, 2010, 2011 is because everything was selling way below replacement cost,” said Alan Reay, president of Atlas Hospitality.

“Some would argue that the new rooms today are making up for the supply we should have had over the last several years. It’s like the housing market, people build more and more and pretty soon you have an imbalance. Are we at that imbalance stage today? No, because we’re just making up for the amount of rooms that should have been added between 2010 and 2013.”

In all, six hotels with 1,017 rooms opened in San Diego last year, the largest a dual-branded, 400-unit, Marriott SpringHill Suites-Residence Inn located on the downtown waterfront. It represented a sharp increase over the 711 rooms that made their debut in 2015.

Orange County, though, boasts the largest 2016 opening in the state — the Great Wolf Lodge Southern California, a $250 million indoor water park and 603-suite hotel in Garden Grove. That alone was responsible for a whopping 198 percent increase in last year’s hotel openings, based on the number of rooms.

Given the thousands of hotel rooms planned for Southern California, there is some anxiety about the region heading toward over-saturation, although it’s highly unlikely all those projects will get built.

Still, it’s not surprising that development is moving forward at a rapid clip, given the continued growth in hotel revenues (4 percent for San Diego last year and 11 percent for Los Angeles) and high year-round occupancy rates.

“Everything that’s opened recently in San Diego and that’s under construction will be absorbed in two to three years, meaning that occupancy won’t drop much at all,” believes San Diego hotelier Robert Rauch, whose company is getting ready to open a Fairfield Inn in San Marcos and is hoping to develop another hotel in Inglewood, just a half-mile away from the planned Rams-Chargers stadium.

“Adding 1,000 rooms a year, that’s a small percentage of the 60,000 rooms we have now. I’m not worried now about over building, but the question is how many in the pipeline will actually be built. If all those get built, then I’m worried.”

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