The real estate market around Los Angeles International Airport is a bit unusual: Hotels are doing well while the office market – with a 45 percent vacancy rate – is not.
So it probably was no surprise recently when an office building on Century Boulevard was converted into a hotel.
Corona Del Mar’s Seaview Investors bought a 12-story office tower at 5933 W. Century last year for $10.8 million and hired Irvine firm R.D. Olson Construction to convert it into a 231-room Residence Inn by Marriott, which cost an additional $44.5 million. When the extended-stay hotel opened its doors in March, it was the first new hotel in the area in 23 years.
Many see that hotel conversion as an example of the best use of existing offices in the area, because the LAX hotel submarket is doing well. It finished last year at more than 89 percent occupancy, outshining Los Angeles County’s occupancy rate of 82 percent, according to Bruce Baltin of downtown L.A. hospitality consulting firm PKF Consulting USA.
Oddly enough, despite the LAX area’s rosy hotel occupancy rate, the average rate customers pay for a room was $121 last year, well below the $179 county average.
“While occupancy is very strong, rates are not high enough on Century Boulevard to support new (ground-up hotel) development,” Baltin said, citing a lack of retail and restaurant options in the area as the culprit.
That only adds to the logic of converting existing office buildings into hotels because it is a significantly cheaper than ground-up construction.
Observers expect more office-to-hotel conversions. Although it’s not a sure thing office buildings that recently sold will be converted into hotels, there has been an increase in sales of late. Eight office buildings have traded hands in the past three years in the area surrounding the airport bounded by West Manchester Avenue and Sepulveda, La Cienega and West Century boulevards, the latter of which is considered to be the heart of the area’s business district. Only five offices traded in the six previous years.
Laurie Hughes, executive director of business improvement district Gateway to L.A., said the office market faces massive hurdles.
“We’ve got old product, we’re in a city that has high business tax and we’re surrounded by cities like El Segundo that don’t have business tax and have newer buildings,” Hughes said. “I think that we’ll see fewer office buildings and more of the trend of converting them to hotels because this area has the highest (hotel) occupancy rates in Los Angeles.”
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