The gold rush in hotel development is nearing an end.
With the passage of federal tax reforms requiring more equity in real estate projects, the race to build hotels that began with pent-up demand in 1980 and was fueled by tax incentives in 1981 and 1982, is expected to slow down.
The slowdown already has started in some areas. In others, it might not be apparent until 1987 or even 1988.
Bruce Baltin, a partner in the Los Angeles office of Pannell Kerr Forster (a certified public accounting firm with an expertise in the hotel industry), explained why this is happening in California:
"There is about a five-year development period in the state for a hotel from the time the idea is conceived until the hotel opens. So, a lot of the hotels we're seeing come on board now were conceived from '79 to '81, which was a very upbeat period.
"The '82-'83 recession slowed the growth of new projects, and these will show up in '88."
Some locales are still experiencing a hotel boom, such as Orange County, where there will be an estimated 14 new hotels or hotel additions with a total of 2,600 guest rooms opened this year.
In Newport Beach alone, the number of hotel rooms nearly doubled during the last 12 months, from 700 to about 1,300.
Hotels Adding Rooms
That per Mac McNeill, managing director of the Newporter Resort, which is adding 104 rooms to its 311 in a $15-million renovation/expansion scheduled for completion by Oct. 1. The renovated hotel will be introduced to the public at its free All-American Jazz Festival on Oct. 12 from 2 to 6 p.m., a spokeswoman said.
"The Marriott is adding, we're adding and the Four Seasons, with 310 rooms, just opened," he said.
The 400-room Newport Beach Marriott Hotel & Tennis Club is adding 202 guest rooms in a 16-story tower with a rooftop lounge. Completion is scheduled in October.
John T. Jenkins, general manager, said, "I think we're getting more people to stay in our hotel, but we have a broader base to fill, so we must be more competitive."
Irvine Co. Hotels
The renovation is an effort to be more competitive.
So is the quality of the $75-million Four Seasons, which James T. Kelley, president of the newly formed Irvine Hotel Co. (a division of the Irvine Co.), says is in the same league as the $100-million Ritz-Carlton. The Ritz-Carlton opened in nearby Laguna Niguel in August, 1984.
"I would categorize the Four Seasons as world class, as well," he said. "We think they are very competitive. The Ritz-Carlton is closer to the ocean. We are closer to other amenities. They have about 400 rooms. We have about 300. It cost us both about $250,000 a room to build, so we're practically identical."
The Irvine Co. owns the Four Seasons and the Irvine Hilton, which has been open for about a year. The Irvine Co. also owns the land under the Newport Beach Marriott, the Newporter Resort, the Airporter and Irvine Host.
A model of the 150-mile Irvine Ranch area owned by the company shows what is built out and planned through the year 2000. Included in those plans is a new hotel a year for the next 10 years.
Overly ambitious in light of current tax reforms? Kelley says it's not.
The hotels have been envisioned since William Pereira master-planned the area in the post-World War II era, and Kelley still means to see them built--"at this point, anyway," he said. He expects the next two to be under construction within 12 to 14 months.
"Well, the Irvine Co. is unique, because they control so much land, so they control the market," Baltin said. Kelley agreed that he thinks the new tax legislation will generally slow hotel growth.
However, he added, "I think we will have some wonderful opportunities to participate in the resort market."
Resort Hotels Popular
A study by the national accounting firm Laventhol & Horwath projects that resorts will be the fastest growing segment of the lodging industry during the next 15 years, expanding from about 400,000 hotel rooms now to 480,000 in 1990, an increase of 20%.
Saul Leonard, national partner for Leisure Time Industries (a division of Laventhol & Horwath), said that current tax reforms will be negative for business hotels "because business expenses like travel and education will no longer be deductible."
But for resort hotels? "Hotel developers will probably be more positive about the pleasure end because there will be more disposable income."
The resort market already is growing like sagebrush in the Coachella Valley. Gil Zimmerman, executive director of Desert Resort Communities Convention & Visitors Bureau in Palm Desert, can go on for several minutes just listing the resorts and hotels expected to open in the vicinity within the next few months.
Doubled in Size
"By 1990, we will have virtually doubled in size, from 50 to 100 golf courses and from 4,000 to 10,000 guest rooms," he said. The activity started about two years ago, when his bureau was formed, he added.