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A Hospitable Environment

L.A. hotel market's revival is driven by entertainment boom. Properties fetch high prices and construction is on the rise.

May 26, 1998|MORRIS NEWMAN | SPECIAL TO THE TIMES

The entertainment industry can take a bow for helping bring about a dramatic revival of the Los Angeles hotel market, industry observers say.

While experts cite a number of other factors that are contributing to the current health of the hospitality business, they note that the strongest hotel markets in Los Angeles are in such "media towns" as Burbank, Santa Monica, West Los Angeles, Beverly Hills, Hollywood and West Hollywood.

The current popularity of the Ritz-Carlton Marina del Rey, for example, "has a lot to do with the Westside and the Marina being discovered, so to speak, by entertainment and high tech," said Geoff Young, the hotel's general manager.

The hotel is 88% occupied, compared with an average 75% in 1995. "We're full every night of the week," Young said.

The vitality is all the more remarkable because the market had been considered weak by investors until about two years ago. Since then, many hotels have gone from being white elephants to coveted assets.

In March, the strongest individual hotel market was Hollywood, with an occupancy rate of 92.1%, followed by Marina del Rey (89.5%), West Hollywood (87.3%), West Los Angeles (86.5%) and Santa Monica (84.5%), according to report by PKF Consulting.

One indication of the strength of the hotel investment market in areas popular with the entertainment industry is the $121-million purchase last month of Loews Santa Monica Beach Hotel by Strategic Hotel Partners of Chicago. The price represents a cost of $340,000 per room, more than double the prices paid by investors for some other local hotels.

"That gives you an indication of what is going on in the West L.A. marketplace. The values have gone out of sight," said Alan Reay, president of Atlas Hospitality Group, a real estate brokerage in Costa Mesa specializing in hotel sales.

Hotel construction is also on the rise. At least two hotels are being built along the Santa Monica coastline, including a conversion by Edward Thomas of the former Pritikin headquarters into Casa Del Mar--the original name of the building, which was built in 1926 as a hotel. In Malibu, the City Council has given tentative approval to a 100-room luxury hotel.

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In existing hotels, the influence of entertainment can be seen in both the design and management style.

"We are geared to the needs of the entertainment industry, especially the moguls of the entertainment industry," said Ali Kasikci, general manager of Peninsula Hotel in Beverly Hills.

Among the features that appeal to the entertainment crowd are flexible check-in and check-out times. Privacy-conscious producers and stars who want hush-hush meetings can rent conference rooms equipped with office equipment. The Peninsula staff has been trained never to discuss the identity of hotel guests. And for guests who do not want to show their face to fans or paparazzi in the lobby, the Peninsula recently refurbished its stand-alone villas, which have their own entrances.

"It's important in that industry for people to protect their privacy, because they are much more public figures than in any other industry," Kasikci said.

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At L'Ermitage, which is set to reopen in Beverly Hills after a four-year hiatus, some entertainment figures may be attracted by the hotel's policy of "privacy, privacy, privacy," according to General Manager Jack Naderkhani.

Style is another important factor in attracting entertainment clientele, according to Ian Schrager, chairman of New York-based Ian Schrager Hotels, which owns the Mondrian in West Hollywood.

"We go after people who want some originality, creativity and freshness, and who are not looking for a generic property," Schrager said.

Among the non-standard amenities at the Mondrian are unique pieces of designer furniture, and a candle-decorated lobby in the evenings.

Schrager bought the Mondrian in 1995 for a reported $17 million and spent $23 million more refurbishing it. The hotel is probably worth $60 million today, according to Atlas Hospitality's Reay.

Just two years ago, the Los Angeles hotel market was still suffering from the overbuilding of the last real estate boom. The low point came in 1992, when occupancy levels throughout the county averaged only 60.9% and room rates averaged $75.20, according to PKF.

"In 1991 through '93, hotels were a pariah for the investment community," said Bruce Baltin, senior vice president of PKF's Los Angeles office.

In the two following years, "opportunistic" investors in search of low-cost real estate were the primary investors. Today, according to Baltin, "the market has come roaring back."

"Not only do you have 10 buyers for every deal, the lenders are really back into the market," said Reay.

In particular, "Wall Street loves the hotel industry" says Baltin, adding that investment bankers both invest directly in properties and provide financing to private investors buying hotels.

The entertainment-hotel connection is an example of how the hotel market echoes the performance of local businesses, according to Baltin.

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