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O.C. Resorts on a Roll, but Trouble Seen in Paradise : Survey: A real estate consultant finds that an industry based on demand growing at twice the national rate is also plagued by road, housing and entertainment deficiencies.


NEWPORT BEACH — The developers of resort hotels along Orange County beaches are facing big obstacles from inadequate roads, lack of low-cost housing for support workers and a paucity of entertainment spots to keep tourists happy.

These problems are emerging at a time when the demand for resort hotel rooms in the county is growing at twice the national average, according to the study by Kenneth Leventhal & Co., a consultant to the real estate industry.

Unless some of these problems are solved, the local resort hotel industry could find itself in trouble, said Gary T. Wescombe, a partner at Leventhal's office in Newport Beach.

"Most of the people who stay in these resorts come from Southern California, particularly Los Angeles," Wescombe said. "If the traffic continues to get worse, that business is going to be threatened, because people won't want to drive down here."

Local luxury resort hotels are trying to broaden their market by drawing guests from elsewhere in the United States and other countries. That could help ease traffic concerns: If guests are flying into Orange County from outside Southern California, they will not have to drive down from Los Angeles.

Another area of need is entertainment. The county needs more big shopping centers on the coast, with fancy stores, more restaurants and more nightlife to give guests something to do, according to the Leventhal study.

Then there's housing. The county has among the most expensive houses in the nation, with the median price about $250,000. The study calls on hotel owners to work toward developing more low-cost housing.

Despite those problems and the county's tiny airport--a larger terminal is under construction--Orange County is already one of the top vacation and convention spots in the United States, according to the study.

So developers continue to draw up plans to add to the 1,750 resort hotel rooms in the county. Leventhal estimated that the number could increase tenfold over the next decade.

As evidence of the room for growth in the local resort market, the Leventhal study pointed out that the area around Phoenix and Scottsdale has 5,000 resort hotel rooms, nearly three times Orange County's number.

Developers are already planning nine new hotels in the county, with nearly 5,000 rooms to be built over the next few years, the study said. Four new hotels are planned on the water in Huntington Beach. The Irvine Co. has plans for three hotels and several golf courses on a strip of coast it owns between Newport Beach and Laguna Beach.

Two spots in Dana Point, where Qintex Australia planned to build a resort before it filed for bankruptcy protection, are on the market again and likely be snapped up by another developer, according to real estate brokers.

And two developers, Arvida Corp. and the Lusk Co., plan a hotel each in San Clemente, said William Bereczky, a manager at Leventhal.

The study found that demand for hotel rooms in the county increased 8% last year, in contrast with just 4% for the nation. That's good news for hoteliers here, because many areas of the county have too many hotels, and room rates have not risen much until lately.

But the resort hotels, such as the Ritz-Carlton in Dana Point, tend to do a little better business, which makes them an even more attractive investment.

There is some room for optimism, Leventhal said, because the resort hotel business is changing as they cater to more convention and business guests, besides the usual tourists.

Because the county is one of the nation's emerging business centers--with a slew of companies involved in the aerospace, computer, pharmaceutical and other industries--the convention business will probably continue to increase, the study said.

Still, the developers will have to be careful that they don't kill the goose that laid the golden egg by overbuilding on the coast, Bereczky said: "The development will have to be done in a very sensitive way. There are a lot of restraints now on coastal development, and they'll help."

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