The good news about L.A. County's severe hotel shortage is that 52 new projects designed to have a total of 7,500 new rooms were proposed in the past year.
The bad news is that only 937 of those rooms have been built because developers are having a nearly impossible time finding financing.
"Unless you have a relationship with a lender, most banks are not willing to lend today on hotels unless they feel it's such a slam-dunk deal that there's no way they're going to lose," said Barrett Patel, director of Torrance-based Indigo Hotels, whose 53-room Hawthorne Suites Manhattan Beach opened this year.
The reason, it seems, has little to do with the demand for those rooms. Lenders are shying away largely because national studies indicate the hotel industry is becoming overbuilt, especially in limited-service hotels, according to Alan Reay, president of Costa Mesa-based Atlas Hospitality Group.
Oversupply might be a problem in other parts of the country but not in L.A., according to Reay, whose group recently conducted a study of the situation.
"They have oversupply in Phoenix and some of those other markets, but lenders don't look at it on a regional basis," Reay said. "Basically we've been painted with the same broad strokes."
The study also found that while eight new L.A.-area hotels came on line in the past year, 14 proposed projects with a total of almost 1,500 rooms have been abandoned.
The L.A. numbers are particularly striking because the average hotel occupancy rate for L.A. County during the first seven months of 2000 had risen to a robust 77.2 percent, up from 74.47 percent for the same period of 1999, according to PKF Consulting, which tracks the area hotel industry.
Average occupancy rates at hotels in Santa Monica, the South Bay, Marina del Rey and around the Los Angeles International Airport the hottest markets were well above 80 percent. And it was just two months ago that the Democratic National Convention reminded downtown boosters that the L.A. Convention Center's possibilities are severely limited by the number of nearby hotels that can accommodate visitors.
Officials with several major banking institutions declined to discuss their policies on hotel loans. Yet their conservative stance is hardly a surprise considering the fallout in the hotel sector during the last economic downturn. In addition, the cost of land in the tight L.A. real estate market is rising while the costs of entitlements are also high.
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