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Hotel Market Experts Look to East for Drivers of Local Growth

The still-growing Chinese economy has the potential to become a sizable force in hotel markets including San Diego County’s — as a driver of property investment as well as a source of visitors filling guest rooms.

“Funds coming from China are really significant,” said Guy Maisnik, partner and vice chair of the global hospitality group at the law firm Jeffer Mangels Butler & Mitchell LLP in Los Angeles.

Maisnik, and other experts at a recent lodging industry forecast forum in Carmel Valley, said Asian investors looking for places to put their money have already made a big impact in international gateway markets like Los Angeles and San Francisco. San Diego could follow suit as the region garners more direct flights to Asia and begins to register higher on the minds of cash-flush investors and tourists in places like China.

Hotel consultant Robert Rauch, president of conference presenter R.A. Rauch & Associates Inc., noted that if San Diego could attract just 1 percent of the 10 million Chinese tourists expected to visit the U.S. this year, the local hotel business impact would be 12 times that of what Qualcomm Inc. currently brings to San Diego.

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Rauch estimated that those 100,000 Chinese visitors — spending an average $8,000 on stays lasting seven days — would generate 700,000 room nights for the local region and drive occupancy levels 5 percent higher.

As it stands, local hotel property values are rising and construction is picking up, as the region nears its pre-recession levels for occupancy and revenue — while still playing catch-up with other California markets for the pace of that growth. Sandra Shapira, director of sales for hotel technology provider TravelClick Inc. in New York, said San Diego is one of five U.S. markets pacing 10 percent ahead of last year at this time for future bookings — the others being Atlanta, Denver, Minneapolis-St. Paul and Tampa, Fla.

Hotel elements could continue to find their way into otherwise nonhospitality projects, such as office and retail centers. Gary London, president of San Diego-based consulting firm The London Group, said some developers of struggling properties will be looking to repurpose them, and hotels have been shown to be synergistic foot-traffic providers at shopping centers and office complexes nationwide.

The San Diego region saw the dollar value of hotel acquisitions rise 35 percent last year, said Alan Reay, president of brokerage and consulting firm Atlas Hospitality Group of Irvine. The big reasons: rising hotel profits, land and other supply constraints, still-low interest rates and a growing base of potential investors chasing a limited number of quality properties.

• • •
What Goes Here? Ask the Neighbors:
Can a commonplace parking lot be transformed into a creative urban space — something considered unique to one neighborhood? And how do you determine what should go there?

Those are the questions behind an experiment being carried out by the Downtown San Diego Partnership, with the East Village Association, urban design firm Rad Lab and property owner HP Investors. The test subject is a parking lot at 13th Avenue and J Street.

Rad Lab recently put up a sign at the site containing the query “What do you want here?” above several blank white boxes where passers-by could fill in their ideas. Answers from the East Village community have so far included a pop-up park, a dog park and a children’s play area.

HP Investors plans to use the input as it makes plans for the space in coming months. Downtown San Diego Partnership officials said the “urban placemaking” approach will be applied to other sites and neighborhoods as the downtown area continues to see more commercial and residential development.

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Retail Opportunities and Challenges: Brick-and-mortar shopping centers must now be many things to many people, while not taking up more of the tech-enabled consumer’s time than is absolutely necessary.

As experts noted during a recent Urban Land Institute forum in San Diego, they must also offer customers nonshopping reasons to spend time there, like restaurants and movies. And in the local region, they increasingly must accomplish all of this in a much smaller space, with a limited number of prime land sites still available for purely retail projects.

Locally, the answer frequently will be a mixed-use development, combining retail with office or apartment elements. Finding the right anchor and related tenants to fit the location, matched with the surrounding neighborhood demographics, remains the challenge.

Kevin McCook, vice president of development and acquisitions for Shea Properties, is looking to replicate the apparent success of its Mercado Del Barrio mixed-use center in Barrio Logan. Its anchor retailer, the Hispanic grocery chain Northgate Gonzalez Market, has proven popular not only with that ethnic community, but also the Asian and nonethnic communities of nearby downtown neighborhoods.

While the ethnic-grocer segment continues to grow, experts noted that ethnic-focused stores have yet to prove themselves as consistent generators of business within general-purpose retail centers — at least on the level of a supermarket or drugstore chain.

The next trend is redeveloping existing older centers to reposition them for today’s market needs. Annmarie Brintnall, retail center director with Gensler, said the architecture and design firm is getting increased assignments related to existing centers in the Los Angeles and Inland Empire regions, where developers are adding various residential, hotel and entertainment elements to make the centers more self-sustaining.

Another approach, the conversion of a nonretail structure into a commercial project, worked for The Headquarters at Seaport District, a $40 million redevelopment of a historic former police building in downtown San Diego. However, the project involved clearing a number of architectural, environmental and other development hurdles over the past decade, said Alex Liftis, senior vice president of development for Carlsbad-based Terramar Retail Centers.

Send commercial real estate and development news of general local interest to Lou Hirsh via email at lhirsh@sdbj.com. He can be reached at 858-277-8904.

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