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Report Says Area Hotel Growth Still Tops Demand

February 12, 1987|SUE CORRALES | Community Correspondent

One of the nation's leading hotel industry consultants predicts that 1987 will mark the second year in a row that growth in the Southeast area's hotel rooms outpaces demand.

The consulting firm, Pannell Kerr Forster, also found that last year the average price of a hotel room in the Southeast Los Angeles County went down more than $2.

The conclusions come at a time when area cities have been scrambling to lure more hotels to their communities and developers have proposed six additional first-class hotels. Construction of a 300-room hotel and convention center is under way in Compton; Cerritos and Huntington Park have signed development agreements for hotels, and proposals are on the table in Norwalk, Pico Rivera and Commerce.

"Any additions to the supply had better be well-conditioned and well-placed," commented James Burba, a partner in the Houston-based consulting firm that studies the market annually.

Owners and operators of some of the area's new first-class hotels say their experience confirms the findings. At the same time, proprietors of some of the area's older hotels say their business has dropped as new competition has moved into the area, suggesting that hotels are trading customers, and not, as some had hoped, generating them.

Rates Halved on Weekends

Some operators admit that they are cutting rates to attract low-budget tour groups. One hotelier, who asked not to be identified, said that on weekends, when business is poor for most local hotels, he rents $70 rooms for $35 in order to boost his occupancy rates. "We all do it," he said.

Pannell Kerr Forster found that the average room rent has dropped in the Southeast area from $55.13 for the first eight months of 1985 to $52.80 for the same period of 1986.

A second study on occupancy, which includes responses from virtually every operating hotel and motel in California, showed that average Southeast area occupancies will dip to 66.9% next year, down from 70.1% in 1985. The state's projected average occupancy for 1987 is also 66.9%, down from 67.9% in 1985.

Operators here say they have to achieve occupancy rates of 70% or more to break even, although the number can vary depending on the hotel's mortgage payment. Operators of the Embassy Suites in Downey say they are achieving about 75% occupancy. Industry analysts attribute the success to the hotel's all-suite format.

Last week, the year-old Whittier Hilton Hotel, which needs about 72% occupancy to break even, had about 60%, said Kitty Dyer, chief executive officer. But, she said, one recent evening was a sellout. "Our trend lines are definitely up," Dyer said.

Steve Robbins, general manager of the Whittier Hilton, said during the fourth quarter of 1986, occupancy ran just under 50%. Room rates, he said, averaged about $65 during the year.

Owners of the 300-room Holiday Inn in La Mirada declined to state their occupancy rate. "We are making a slight profit, after debt service," said Lewis Wolff, managing partner. "I'm not crying, but no one would go with the investment we made for the return we are getting today."

Prices Rising in Long Beach

In the Long Beach area, the news is better in the consultants' statewide forecast. Rooms are coming on the market faster than they can be filled, but room prices are going up, and the number of people staying in area hotels has increased sharply.

"In a market like Long Beach, demand frequently follows supply," Burba said. "The potential there is strong for capture of the business, the meeting and the tourist market."

Despite the lackluster forecast, cities north of Long Beach are forging ahead with their attempts to lure hotels with promises of operating subsidies and rights to develop other buildings alongside the hotel.

In every city with a hotel project, officials say they are subsidizing it, or would be willing to. Cerritos' Redevelopment Agency, for example, is making a $5-million, interest-free loan to Transpacific Development and agreed to pay hotel operators a $750,000 annual subsidy for 20 years, or until the hotel becomes profitable.

"We think the project will succeed because we've got a distinctive product, we're creating the market (by building nearby office buildings), and we've got the subsidies from the agency," said Steven Schafenacker, Transpacific's project manager for the Cerritos Towne Center.

Developers and city officials in Cerritos and Norwalk, where a Hilton is proposed, say their hotels are being built at the behest of city councils as required centerpieces of larger projects. In Cerritos, the carrot for developing a 200-room hotel is the right to surround it with a million square feet of office space. In Norwalk, the 200-room Hilton would be part of a $60-million commercial and residential project.

City Support Called Positive

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