Downtown L.A. Hotels Have Eye On Ritz-y Rival

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It’s being called “renovation on steroids.”

Korean Air’s recent announcement that it plans to tear down the aging Wilshire Grand Hotel and replace it with a luxury hotel, office and retail complex is just the latest example of how the $1 billion Los Angeles Convention Center hotel down the street is rippling through the downtown hotel market.

Several other downtown hotels have just completed, or are in the midst of, multimillion-dollar renovations, driven in part by next year’s planned opening of a 54-story hotel complex next to the Convention Center.

The 1,001-room hotel will feature both Ritz-Carlton and J.W. Marriott hotels, along with luxury condominiums under the Ritz-Carlton banner. It is affiliated with the LA. Live complex, a burgeoning entertainment node next to Staples Center.

“Whenever you have a major new hotel coming on the market like this, the older hotels have to step up to renovate,” said Alan Reay, president of Atlas Hospitality Group, an Irvine hotel industry consultancy.

Among the major renovations in the works are a $40 million makeover for the Westin Bonaventure Hotel, a $9 million to $12 million renovation of the Omni Hotel and an estimated $5 million upgrade for the Hilton Checkers Hotel.

Of course, these all pale next to the plan for the Wilshire Grand, owned by Korean Air, a subsidiary of the Hanjin Group South Korean conglomerate.

The 57-year-old, 896-room hotel would be torn down and replaced with a 40-story luxury tower containing up to 700 rooms and scores of condominiums. The $1 billion project, which has yet to secure city approvals or financing, includes a 60-story office tower and ground-level retail. Downtown L.A.’s Thomas Properties Group is the master developer.

Korean Air decided to proceed with the project amid one of the worst economies in decades, in part because of next year’s arrival of the Convention Center hotel.

“Korean Air strives to be competitive in any market it enters,” said company spokeswoman Penny Pfaelzer. “The Ritz-Carlton/Marriott is setting the bar higher for the downtown convention hotel market and the Wilshire Grand needs upgrading to remain competitive.”


Economic slowdown

Pfaelzer said the company had other reasons to proceed now, including having maximum negotiating leverage during what is certain to be a long and complex city approval process. With the economy delaying the $3 billion Grand Avenue project downtown, and other major developments either being postponed or withdrawn, Los Angeles officials are expected to be eager to see the Wilshire Grand project succeed, perhaps by cutting red tape and related fees.

Even so, the new hotel won’t open for another five years, assuming Korean Air and Thomas Properties can get financing. By that time, it is hoped the economy will have turned around, and tourism and convention business will have picked up.

In the meantime, the Convention Center hotel is set to open next year, adding 1,001 rooms in a very tough market.

“No question that when those hotels open, revenues for everyone will go down,” Reay said. “It’s happened in San Diego where a new 1,190-room Hilton hotel just opened near the convention center, and it will happen in downtown L.A.”

That’s not the scenario that downtown hotel executives had expected when they planned renovations at the height of the recent economic boom. They anticipated the Convention Center hotel would bring in larger conventions and they wanted to be in prime position to attract convention attendees.

The largest renovation is at the Westin Bonaventure, which at 1,354 rooms is the largest hotel in Los Angeles County.

General Manager Michael Czarcinski said the initial phases of the $40 million renovation are complete, including the hotel restaurant, main lounge and pool deck. Half of the hotel rooms are slated for work this summer, with renovations of the lobby and meeting rooms/banquet halls coming in the fall.

“The primary reason for the renovation was the fact that we were growing, both in revenues and occupancy rates,” Czarcinski said. “But with new product coming on the marketplace, we also knew we had to keep up with the competition.”

He said that the deteriorating hospitality sector has not slowed the hotel’s plans. But the economic slide has put a temporary halt to a $9 million to $12 million renovation at the Omni Hotel on Bunker Hill.

Chaya Donne, Omni marketing director, said work was completed last year on the restaurant, but that room renovations set for this summer have been put on hold.

“We have already chosen the new custom furniture design for our rooms and had planned to reconfigure some of our suites,” Donne said. “But now it’s looking like this will take place towards the end of this year.”

Donne added that when the renovation was planned a couple of years ago, one key goal was snagging more foot traffic from larger conventions drawn by the Convention Center hotel. “We always try to keep our product fresh, but the coming of that hotel made the decision to renovate much easier for us.”


Room shortage?

At the Hilton Checkers Hotel near Pershing Square, a $3 million room renovation plan was completed last year, according to General Manager Kathy Faulk.

A smaller second phase, including work on the restaurant, lobby and meeting space, was slated for September, but Faulk said it is being “fine-tuned,” given the lower room rates this year.

One major downtown hotel, the Sheraton, is not planning a major overhaul, even though it’s the closest nationally branded hotel to the Convention Center. A minor “freshening up” began last year and is slated to wrap up this year with the installation of new televisions, according to General Manager Ian Gee. The total cost for the work is estimated to be less than $250,000.

Gee said that while he welcomed the Wilshire Grand project, he was a little concerned about the 800 rooms being taken off the market for a few years between the demolishing of the old hotel and the completion of the new site.

“If we get large conventions with 10,000 or 20,000 attendees coming here as we all hoped to do with the building of that Convention Center hotel taking those 800 rooms off the market could hinder our ability to house everyone,” he said.

But local hotel industry watchers said this will likely not prove much of a problem.

“What will happen is just what happens now, which is that if all the downtown hotels are full, they’ll book rooms in Hollywood, on the Westside, out by Universal City or even by LAX,” said Mark Liberman, chief executive of L.A. Inc., formerly the Los Angeles Convention and Visitors Bureau.

For the nine-month period ending March 31, L.A. Inc. has booked 40 conventions, up from 36 for the comparable nine-month period a year ago. L.A. Inc. executives note that the 2007-08 fiscal year ending last June 30 was a record period for booking conventions.

At the same time, the total number of hotel room stays generated by those 40 conventions is about the same as last year’s 36, according to L.A. Inc.

“In the longer run, (the Convention Center hotel) will increase occupancy at most of the other downtown hotels, assuming that these hotels keep their upgrades moving,” said Bruce Baltin, principal with hotel industry consultancy PKF Consulting in downtown Los Angeles.

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