Financing Slowdown Hampers Hotel Plans
BY TANYA RODRIGUES
Staff Writer
“When is the hotel financing market going to get better?”
John Greisen is asked this question all the time, and he always has the same answer.
“When good news about the hotel business filters to the man on the street,” said Greisen, senior vice president for MM & S; Investment Corp., a Minnesota-based company with a regional office in Solana Beach.
By the time news of the market’s recovery reaches the average person, it’s generally accepted, Greisen said.
In turn, the people who make up the committees of the various financial institutions will be ready to approve the loans, he said.
Hotel financing , the ongoing lack of it, to be more specific , was the underlying theme of a recent study on new hotel development in California, released by Atlas Hospitality.
The Costa Mesa-based firm’s report illustrated the difficulties projects have had with funding.
San Diego leads the state in the number of projects planned. There were 62 at the end of 2001.
However, there were 66 planned at the end of 2000, and only three of them actually opened in 2001, said Alan Reay, Atlas’ president.
One or two years ago, lenders asked for 25 or 30 percent equity for any project, but that amount has grown, Reay said.
According to Greisen, lenders are asking for about 50 percent. The “soft ‘no,'” he calls it.
“The developer says, ‘Well, there’s no way I can put in 50 percent equity and make any money for myself,” Greisen said.
His advice for hotel developers is to focus on their projects that are already operating.
Unbuilt projects will have to wait, he said.
Greisen said that operating hotels will simply have to perform better and knowledge of that will have to spread before financing new hotels even seems viable.
The Atlas report predicted a “continued decline” in the number of new hotels that will be built in 2002 and 2003 in California.
Reay expects Southern California to recover sooner than its northern counterpart.
It was the first to see a slowdown. As 2001 progressed, Northern California’s market for hotel financing began to soften, and lenders began to pull back, Reay said.
After the Sept. 11 terrorist attacks, the financing dried up all over, including Southern California, he said.
Northern California’s roller coaster has been more dramatic than its southern counterpart, Reay said.
“What Southern California has going for it, interestingly enough, is that the rates were never as high as a city like San Francisco,” he said.
A San Francisco hotel would have had an average room rate of $250 to $300 a night, he said, while a comparable hotel room in San Diego would have peaked at $150.
In contrast, when rates plummeted, the San Diego hotel might have dropped to $100, but the Northern California property would have dipped even more dramatically to $80-90.
Locally, the performance of San Diego hotels show a strong potential for recovery, he said.
“San Diego was really a shining star in Southern California,” he said. Most of the investors calling Atlas asked about San Diego.
Even after experiencing the post-Sept. 11 slowdown, San Diego hasn’t completely lost its luster, Reay said
“Overall it’s a strong market, a healthy market,” he said. “It’s diversified, and has a lot to offer.”
Atlas’ projections have an increase in the development of new hotels starting in 2003.
The lack of building could be a benefit, Reay noted.
“The fact that there’s not going to be a lot of new inventory brought in means that the existing hotel owners are going to have a strong market,” he said.
The report also listed the hotels that were opened in the area during 2001. The largest was the Hampton Inn Downtown San Diego, which has 162 rooms.
