Tourism: 51 Projects Are in the Works
For San Diego
Upbeat projections about San Diego’s hotel industry come down to two numbers: 75.6 percent and $108.60.
The first was the average hotel occupancy in the county for January through July. The second reveals the hotels’ average rate per room for the same time span.
Both figures have increased 5.2 percent from where they were at the same time last year, according to the San Diego County Hotel-Motel Association.
The average occupancy percentage and room rate also color a study on hotel projects recently released by Costa Mesa-based Atlas Hospitality Group. According to the study, which was done mid-year, 51 hotel projects are in the pipeline for San Diego.
The projects would add 11,196 rooms to San Diego’s current inventory of 46,600, the study said.
Comparing the statistics to Atlas’ report in 1999 shows stability between this year and last year’s markets, said Alan Reay, the company’s president.
Last year, Atlas reported there were 49 projects in various planning stages. The projects would add 11,057 rooms.
Atlas’ study also discussed hotel projects that had been or would likely be completed in 2000, listing nine hotels that would add 1,165 rooms to the market.
It again wasn’t that different from 1999, when nine hotels and 1,145 rooms were completed, Reay noted.
“Despite the fact nine were built and a few projects dropped off and a few were added, I think one thing is coming through , San Diego County is a consistent marketplace,” he said.
Appealing To Investors
What the high occupancy and average room rates add up to is a market that is more appealing than most cities’ to hotel investors , and in a particularly tough financing market, Reay said.
“Companies will look to build here, and because the numbers are much stronger in San Diego County than other parts of Southern California, it’s a little easier to get the projects financed,” he said.
Of the various projects, Reay predicts about 10 percent will actually be completed.
By the end of 2001, he expects 1,200 rooms will be added to the market, which will be able to support the growth.
“It’s still a very, very small percentage of the actual supply of rooms in San Diego County,” Reay said.
According to Bob Rauch, a San Diego-based hotel analyst, 10 to 25 percent of the projects will likely be completed.
“I think that it’s healthy that only a small percentage of the properties will get developed, which will keep our supply and demand in balance,” said Rauch, a managing director of InterBank/Brener Hospitality. “As long as the core convention hotels get built Downtown, I think we’re fine without all the new product.”
Chasing Greenbacks
The biggest challenge for the market remains finding financing , with lenders requiring developers’ personal guarantees, a proven track record in the industry, a leading hotel brand, a great location, a strong return on equity and a strong debt service coverage ratio, Rauch said.
Reay said: “Lenders are just down on hotels, and that’s more of a national thing rather than a regional thing.
“It’s not like they’re looking at California and saying ‘This isn’t a good place to build,'” Reay continued. “They’re looking at a national scale and saying, ‘We don’t want to be in hotel development.'”
Reay recalled that two or three years ago, the market was very strong and a lot of lenders wanted to invest in hotels.
“Now, they’ve pulled back, and the lenders have somewhat of a herd mentality,” he said. “If a few reports come out on a national basis, and one or two lenders pull out, then the others retreat.”
The same will be true when the cycle comes full circle, Reay said. “When they see a number of lenders moving into a marketplace, they follow them.”
Rauch and Reay agree the trend will change.
“I think prices will continue to go up,” Reay said. “I think lenders will see that the returns that these hotels are doing as they’re coming into the marketplace are very, very strong.”
Rauch’s prediction about the local hotel market: “I think that in the next 12 months, it will be fairly stable. It will be difficult to do deals, but it’s attainable.”
According to Reay, the hotel projects that are getting built in San Diego have highly regarded brands, such as Marriott and Hilton.
He attributes it to the high cost of land and construction.
“It’s so expensive that developers are going for the higher end, limited service product,” Reay said. “Obviously, when you pay the prices that they’re asking for land today, it doesn’t make economic sense to build a budget hotel like a Motel 6,” he noted.
The majority of current hotel projects are in the $80-and-above category for room rates, and a lot of them are higher, in the $90 to $100 price range, Reay said.
