Downtown Boom in Hotel Building Is About to Begin

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Several downtown hotel projects that are about to begin construction would add more than 2,200 rooms roughly half the current inventory within the next three years.


The developments, unprecedented in scope for downtown, have been spurred in part by the spate of residential and retail construction already under way. But it’s coming to one of the weakest-performing submarkets in Los Angeles County.


Through October, downtown L.A.’s upscale hotels posted average room rates of $124 a night just 0.9 percent higher than the like period a year earlier and an average occupancy of 69.5 percent, lowest in the county, according to PKF Consulting, which tracks hotel trends.


The one bright spot has been a 14 percent jump in average occupancy. Bruce Baltin, a senior vice president in PKF’s Los Angeles office, said downtown hotels are beginning to capture a larger share of business and tourist travelers, who previously preferred to stay in Pasadena, Hollywood or West L.A.


“People staying downtown felt isolated and alone and scared when they went out at night


because the streets were empty,” he said. “As more residents move downtown and more restaurants open, that perception is changing.”


Others aren’t so sure. Peter Zen, president of FIT Investment Corp., owner of the 1,354-room Westin Bonaventure, downtown’s largest hotel, fought subsidizing a convention center hotel in part because he believes it will add more rooms than the market can support.


In a compromise struck in October, Zen dropped lawsuits holding up the project in exchange for city approval to convert a third of his hotel into condominiums should the convention center hotel dilute demand.


“Right now, the answer is no, the market isn’t strong enough to support these new hotels,” Zen said. “Maybe when these things come on line, maybe the market will have improved. I sure hope so.”



Boosting convention business


With 1,100 rooms, the convention center hotel is the largest and most controversial of the planned projects. It will break ground early next year.


The hotel’s developers a partnership between Apollo Advisers LP and Wolff Urban Development LLC secured up to $277 million in city subsidies to offset the project’s $425 million construction cost. The 56-story hotel is aimed at reviving business at the moribund convention center, which has been sapping the city’s general fund of more than $20 million a year.


Convention center proponents believe that the hotel will allow Los Angeles to better compete with other West Coast destinations for large city-wide conventions. They say that convention business the city gains will more than support the hotel and spill over into downtown’s other business-class properties.


Baltin, who is working on the headquarters hotel proposal, believes downtown can support the new hotel rooms, as long as the convention center hotel is built. “If those hotels were built and the headquarters hotel wasn’t, then I would worry,” he said.


Meanwhile, Apollo Advisers, which is investing $70 million in the project, and Staples Center-owner Anschutz Entertainment Group, which owns the hotel’s land and entitlements, were still locked in negotiations in mid-December. Both sides said an agreement was imminent.


“The actual details about the overall financing of this project will be made very clear in the next few weeks,” said AEG spokesman Michael Roth.


Among other hotel projects in the pipeline:


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Maguire Properties Inc. filed plans in June with the Community Redevelopment Agency of Los Angeles to build a 24-story, 400-room hotel at 755 Figueroa Street.


Maguire, the largest landlord on downtown’s Bunker Hill, inherited the development when it purchased the 777 Tower as part of a $1.5 billion portfolio from CommonWealth Partners LLC.


The hotel project, which would be located near the office building at Figueroa and 7th streets, will contain 184 condo units above the 400-room hotel. There also would be a sizeable ground floor retail center.



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IDS Real Estate Group is purchasing land, with approval from the city, to build a 480-room hotel, as part of its 2.6-million-square-foot Metropolis development north of the Staples Center arena.


The acquisition must be approved by the City Council, since public funds were used in the 1980s to assemble the land for the project. That could be a hurdle, since City Councilwoman Jan Perry has questioned the project’s design and lack of affordable housing.



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Related Cos. plans to build a 275-room hotel as part of the $1.8 billion Grand Avenue project, which the New York-based developer intends to begin next year. The hotel would be situated near the Walt Disney Concert Hall, and it’s intended to serve the concerts and other cultural venues along Grand Avenue.


Michael Collins, executive vice president of LA Inc., the convention and visitors bureau, said the agency had always expected the convention center plans to attract more hotel developers. “It’s a phenomenon we believed would take place,” Collins said, “but we’re pleasantly surprised it’s happening this quickly.”


Each hotel proposal includes plans for several hundred condominium units on the top of the structures. Combined, the four projects will have 632 residential units.


With 1,000-square-foot condos downtown fetching close to $625,000, those residential units can significantly offset steep construction costs. “Without the condo market none of these hotels would get built,” Zen said, “not even the convention center hotel.”


Bill Witte, president and managing partner of Related Cos.’ California division, said that adding condos helps the hotel’s bottom line, but the units don’t come close to covering the cost of construction. “That assumes the housing is a slam dunk and there’s profit left over,” he said. “You can’t count on revenue you don’t have yet to pay for the hotel.”

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