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Luxury a Key in New S.D. Hotels

Once a haven for budget-conscious lodgers with families in tow seeking out 2- and 3-Star hotels, San Diego is sprouting new properties where the rich and famous can empty their wallets.

The push to build upscale new hotels is partly a response to consumer demand, as national and local reports show. People are not only traveling more in the post Sept. 11 era of economic resurgence, their tastes in hotel accommodations, as well as their budgets, are also climbing.

Major tourism destinations stand to benefit as more luxury hotels come online. And in the case of San Diego , typically thought of as a laid-back beach town, the trend helps to move the needle more toward that of urban metropolis.

“The hotels under construction are focusing on luxury in response to consumer demand,” said Alan Reay, the president of Atlas Hospitality Group, a Costa Mesa brokerage, which surveys hotel sales and development throughout the state.

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“The age group they serve is from 40 to 60 years in age,” Reay said. “That’s a huge demographic now that has a lot of disposable income.

“These are people who’ve done well in the current economy and housing market. Many inherited wealth. They’re prosperous and they’re spending a lot on travel. In theory, when people stay in a hotel they want amenities that are nicer than they have at home. Nowadays people have plasma TVs at home and upgraded bathrooms and if they’re going to go out and spend $350 to $400 a night for a hotel room, they still want better than they have at home.”

Gary London, the president of San Diego-based London Group Realty Advisors Inc., agrees.

“For a long time the Four Seasons Aviara and the Hotel del Coronado were considered the county’s top luxury offerings,” he said.

But now San Diego has to compete with destinations such as New York City and Miami that offer an abundance of top notch lodging facilities. Travelers expect no less, he added.

While there have been recent additions to the county’s luxury lineup, such as the Lodge at Torrey Pines and the Estancia La Jolla Hotel & Spa, the W San Diego in Downtown and the Omni San Diego, not one has earned the Mobil 5-Star rating, arguably the highest and most difficult to achieve.


Seeing Stars

But the $265 million Grand Del Mar, a sprawling complex including a golf course, fractional ownership vacation villas and a 261-room hotel under construction south of state Route 56 off Carmel Country Road, is aiming to break into that elite category. So is the Regent International Hotel, a 350-room property proposed by La Jolla-based American Property Management for construction in Downtown at a cost of $120 million adjacent to Westfield Horton Plaza.

The Regent isn’t listed on Atlas Hospitality Group’s newly released 2005 Development Survey. However, the Grand Del Mar, expected to be completed and open in mid-2007, was included, as were two other luxury brands: the 393-room Hard Rock Hotel San Diego and the 185-room Diegan. Both are in Downtown and are expected to complete construction and open in late 2007.

The tab to build the Diegan was placed at $75 million. The price of construction for the Hard Rock was not revealed.

Both are being marketed as condotels, a trend that is turning average individuals with above average incomes into hotel owners. As condotels proliferate, as expected, they will also help to drive the luxury trend, London pointed out. Since the properties are being marketed primarily to people in a high-income bracket looking for a vacation getaway, they have to be high end to be appealing. The Hard Rock’s rooms and suites range from about $400,000 to more than $1 million, while the Diegan’s have the same starting price and range as high as $4 million for the penthouse suites.

In a typical condotel development, owners will use their units as vacation getaways on a part-time basis and put them into the hotel’s room inventory the remainder of the time. The trend is relatively new in California, having spread west recently from Florida and New York. Financial analysts warn buyers that they can’t expect the same rate of appreciation on a condotel unit as they might from a residential condominium. However, lodging industry forecasters say they think a majority of developers will be looking at condotels as a way to finance their projects in the face of ever increasing construction costs.


Motel 6 Destined For Historic Status?

According to Bob Rauch, the president of the San Diego County Hotel-Motel Association, San Diego is not likely to see a new Motel 6 or Super 8 under construction anytime soon.

“Developers and owners can’t afford to build them and make them profitable at those low room rates,” he said. According to a Motel 6 Web site, a room in mid-February at a property on Pacific Highway was going for $44.99 per night.

The average daily rate for the county’s hotel rooms during 2005 was $122, said Duane Vinson, a researcher with Smith Travel Research, a Tennessee firm that tracks the lodging industry nationwide.

PKF Consulting, an international firm which has offices in Los Angeles, also studies the lodging industry, and placed San Diego’s average daily hotel room rate higher, at $150 a day on average during 2005.

According PKF’s findings, 31 properties with a total of 11,923 rooms countywide charged more than the average $150 nightly last year. On the whole, those hotels had an average daily rate of $200.61.

Last year there were 90 hotels totaling 15,091 rooms that were let for less than $150 a night. The average at those properties throughout 2005 stood at $108.90. But the higher priced hotels had a higher rate of occupancy 77 percent vs. 75 percent at those offering lower priced rooms.

Room rates at many of the hotels under construction have yet to be set. At the proposed Regent, rates are expected to start at about $350 a night, said Michael Gallegos, who heads American Property Management. Executives at the U.S. Grant anticipate room nights starting at $389 and going up to $750 for a suite.

Rauch said the more luxury brands that are built , from those in the limited service bracket catering to business travelers to full service properties offering such amenities as championship golf courses, pampering spas and gourmet restaurants targeting leisure visitors , the more pressure there is on existing hotels to renovate and upgrade in order to compete. Rauch is also a co-owner of Homewood Suites by Hilton San Diego/Del Mar.

The Atlas Hospitality Group doesn’t track hotel renovation. There aren’t any surveys that do on a countywide basis. Yet the storied U.S. Grant Hotel, which was sold to the Sycuan Band of the Kumeyaay Nation in 2003 for $52 million and is undergoing a renovation estimated to cost equally that much in order to fly the Starwood Luxury Collection flag, is one example of a hotel being primed for a glory day reincarnation. It closed for construction in January and is expected to reopen in the late fall.

Atlas Hospitality’s summary of hotels under construction in San Diego County during 2005 totaled 1,766 rooms. The Hilton San Diego Convention Center Hotel, which started construction in January, was not on the list. But its 1,090 rooms were among the 9,960 tallied for hotels in the planning stages last year , the highest total for any county in the state. If the $348 million Hilton is completed on schedule, it could open in late 2008.

Historically, only about 10 percent of hotels in the planning stages actually get built. But Reay said that the “climate now is for a larger fraction to get financed and built , maybe 15 percent.”

If a 1,700-room hotel proposed by Tennessee-based Gaylord Entertainment Co. as part of a large, self-contained convention center complex on Chula Vista’s bay front comes on line in 2009, that alone would exceed Reay’s projection for future hotels going from the drawing board to reality.

If this can be construed as a building boom, then the question is, will a bust follow?

Rauch said it depends on the economy.

“The trend is that capital is abundant for hotel development in major markets and that they are gearing toward high end,” he said. “In good times everything fits into place, and the individual guest and the meeting planner pay the price. But when there’s a convergence of oversupply, and an economic downturn hits, then the luxury hotels reduce their prices and there is a trickle-down effect.

“Travelers are basically trading up and getting more for the same price that they’d pay for a lesser quality hotel room and profits deteriorate quickly.”

To avert such a possibility, Rauch firmly believes more of the city’s 10.5 percent hotel room tax collection, long siphoned off for general fund uses, must be re-channeled into tourism marketing , the original purpose of the tax.

“This market needs to be prepared and we are not even close to being prepared,” he said.

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