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L.A. Visitors May Find There's No Room at the Inn

Lodging: With demand for accommodations exceeding supply, tourism officials fear the county will lose business.

September 19, 2000|STEPHEN GREGORY | SPECIAL TO THE TIMES

Local tourism officials have begun to worry that Los Angeles County's stock of hotels isn't growing fast enough to meet burgeoning demand from travelers, sparking concern the county could soon lose vital tourist trade to Orange and San Diego counties, both in the midst of dizzying booms in hotel construction.

Los Angeles County's supply of hotel rooms, now at roughly 94,000, has seen average annual growth of no more than 0.5% in each of the last seven years while surging business and leisure travel has pushed average hotel occupancy to nearly 80%--a boon for existing hotels and their bottom lines but a curse for event and tour planners chasing an ever-tighter lodging pool.

Among impediments to faster growth have been increasingly stiffer conditions on financing for hotel construction and a shortage of land where hotel development makes economic sense.

"Supply has certainly not been keeping pace with demand," said Bruce Baltin, senior vice president of PKF Consulting hospitality analysts in Los Angeles. "Major tour operators are having a tough time getting rooms in L.A."

Tourism, the county's third-leading revenue producer behind the health-care and business support sectors, accounted for $12.3 billion in spending last year, according to the Los Angeles Convention and Visitors Bureau. That figure is expected to hit $13 billion this year.

Rising revenue is not a surprise, given that occupancy rates at county hotels have grown an average of 3% a year for the last seven years. In downtown Los Angeles, the occupancy growth has been even more marked, jumping from a 13-year low of 47% in 1993 to right around 70% last year.

Yet downtown, with just under 5,000 hotel rooms, hasn't welcomed any new guest accommodations since 1993, while annual attendance at the Los Angeles Convention Center--downtown's primary visitor magnet--has risen steadily. This year the center is expected to draw at least 643,000 people, an increase of 7% over last year.

Only 650 of downtown's hotel rooms are within a half-mile radius of the convention center, and city tourism promoters fear major conferences and expositions may bypass Los Angeles in favor of places with considerably more lodging closer to their event centers. San Diego has more than 3,400 hotel rooms within walking distance of its meeting facility and is expected to add nearly 2,000 more in the next few years.

More troubling news turned up in a study released Monday by Atlas Hospitality Group of Costa Mesa that showed L.A. County trails San Diego and Orange counties in the number of hotel rooms being built or planned. The report credited San Diego County with 11,196 and Orange County with 9,265 while L.A. County came in at 7,117.

Although the report shows L.A. County beating Orange County in the number of new hotel rooms set to enter the market this year--937 versus 831--San Diego County, perhaps the strongest hotel market in the state, topped them both with nearly 1,200 new rooms expected by year's end.

Plans are in the works to add close to 900 new, privately financed hotel rooms in downtown Los Angeles within the next few years, but none of them fall within the crucial half-mile radius of the convention center or include new buildings. Two former office towers are set to be converted to hotels and a former welfare hotel may be remodeled.

Meanwhile, the Los Angeles City Council is considering a proposal by the owners of Staples Center to help pay for construction of a 1,800-room hotel across from the arena and one block north of the convention center. But until that or any other new hotels are built near the facility, Visitors Bureau Executive Vice President Michael Collins called the possibility that Los Angeles could lose convention business to its southerly neighbors "a very real threat."

"Conventions will come here or they won't come here depending on whether we get new hotel construction; it's as simple as that," he said. "Here we are the largest convention center on the West Coast with the same hotel stock that for the most part existed well before the convention center expanded in 1993."

That expansion, which pushed the facility's exhibition space to 842,000 square feet, stole business from the now smaller Anaheim convention center, which in 1998 responded by launching its own make-over.

When that $177-million project is complete by the end of this year, the Anaheim facility will be 40% bigger than it was and able to boast a competitive 815,000 square feet of exhibition space. What's more, the new center is just a short walk from perennial tourist favorite Disneyland, which itself is nearing completion on an expansion that will add a 55-acre California-themed amusement park right next door.

Accommodating the additional visitors both projects are expected to attract will be nearly 5,000 new hotel rooms scheduled to open in Anaheim and neighboring Garden Grove within the next four years.

Farther south, work is wrapping up on a $216-million expansion of the San Diego Convention Center, and plans also call for as many as 3,600 new hotel rooms to be built within walking distance.

Though mindful of the growing competition, hotel developers in L.A. County may have a hard time fighting back given increasingly restrictive lending standards for new hotel construction, analysts said.

Lenders have been steadily reducing the percentage of new hotel projects they are willing to fund, forcing developers to scramble to amass larger sums of equity, said hotel consultant Jack Westergom.

Hotel developer Rob Lowe of Brentwood-based Destination Development Corp. said one reason for the financing crunch could be that higher interest rates have made hotels, with high upfront costs and no guaranteed tenants, less attractive to investors than other commercial real estate.

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