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Thursday, Jun 30, 2022

SPECIAL REPORT: New Scene Checks In

Over the decades, the Sunset Strip has witnessed Jim Morrison dangle out of a hotel window, Tower Records become a global landmark and River Phoenix die of a drug overdose.

Now a new era is beginning for the legendary area as real estate developers look to bank on the boulevard’s storied past of celebrity and counterculture.

After three decades without major construction, several multistory projects have broken ground and are pushing up the Strip’s skyline. Sleek new buildings with rooftop pools and public plazas will add more than 758 hotel rooms and 254 residences on Sunset Boulevard. Altogether, they represent an estimated value of $1 billion. At least two other complexes are in development as well, including a Frank Gehry design.

Backed by major companies, these projects will inevitably transform both the economy and culture of the iconic mile-and-a half section of Sunset.

“Sunset has gone through so many changes over the years, from the hippies and punk rockers to the hair bands and the cruising. … And now it’s on to its next incarnation,” said Lee Maen of Innovative Dining Group, whose swanky restaurants such as Katana attract hip customers on the Strip.

“People are really looking at the Sunset Strip for the next big frontier,” he said.

It’s not that the Strip is bereft of 100-thread-count sheets in which to wrap weary travelers. Seven hotels, including the Andaz West Hollywood, once the notorious “Riot House” Hyatt hotel, make their home on Sunset, with a couple of others just off the boulevard. But they are already operating nearly at capacity.

High demand

The average West Hollywood hotel occupancy rate was 82.6 percent in the first half of last year – and some Strip hotels saw occupancy as high as 90 percent. Hoteliers consider 70 percent a sign of strong demand.

The newcomers will increase West Hollywood’s hotel roster by 36 percent, and experts such as Alan X. Reay, president of Irvine’s Atlas Hospitality Group, welcome the boom.

“There isn’t any threat that we could oversupply the market,” he said.

The particular appeal of the Strip – where tattoo parlors, cigar shops and psychics are walking distance from $22 cocktails garnished with edible gold leaf – derives from its international reputation as an entertainment capital. As a must-see tourist attraction, it is a “proven commodity,” said broker Nico Vilgiate, who works at Colliers International’s downtown L.A. office, prompting investors to fill in the “dilapidated areas and build up.”

Historian Alison Martino, who runs the website Vintage Los Angeles and who used to play drums at Sunset’s Whisky a Go Go, thinks the Strip’s quick pace of change gives it a unique allure.

“Walking down Sunset Strip truly feels like you’re in the center of the universe because it’s constantly breaking new ground and reinventing itself,” she said.

China factor

The Strip’s hotel building boom reflects a trend across all of Los Angeles. According to Ernest Wooden, chief executive of the Los Angeles Tourism and Convention Board, 84 hotel projects are underway that will give Los Angeles County 14,650 new rooms. Statistics suggest that L.A.’s existing hotels sell out most days of the week. That’s partly because the growth rate has been stuck at about 1 percent a year over the past decade.

Tourism has drastically increased in that time, with last year’s 45.5 million visitors setting a record for the fifth year in a row. Of the several million international visitors, the biggest jump in tourism came from China, comprising 13 percent of the influx, followed by South Korea’s 11 percent.

“China is the big target we’re focused on now,” said Wooden, noting that China ranks No. 2 after Mexico among foreign countries sending tourists to Los Angeles. His tourism board runs offices in Beijing, Shanghai and Guangzhou in order to attract even more Chinese tourists.

Business travel appears to be on the rise, too. Wooden said downtown is bringing in more conventions now than at any time in the last 25 years.

New projects

In anticipation of the West Hollywood hotel building spree, city officials are studying how many rooms the market can comfortably absorb and how much tax the city could eventually generate. Hotel taxes presently make up 24 percent of the city’s general fund revenue.

“Our hotels are very important to the city and they’ve all been doing well,” said John Leonard, West Hollywood’s revenue manager. “New hotels can either be helpful or they can hinder. So we wanted to know: How is it going to affect the other hotels? How is it going to affect our market? Based on these hotels being built, our market is very popular.”

Popular – and pricey. The average daily rate was $279 in the first half of last year, a jump of 9.7 percent over that period the year before. The revenue per available room, which takes into account unsold rooms, was $231, an increase of 7.3 percent over the same period the previous year.

The new projects could push those rates higher.

CIM Group is already at work on Sunset La Cienega, which will feature two 10-story hotel towers with a sleek modernist design offering 296 rooms. Plans include two restaurants, rooftop and lobby bars as well as 10,000 square feet of meeting space. Public plazas anchored by ground-floor retail will connect the hotel to two eight-story residential towers supplying 190 units. The entire construction project, estimated at $365 million, spans two city blocks.

The boutique James Hotel will inhabit the two hotel towers and be operated by New York’s Denihan Hospitality Group.

“We feel it aligns well with our guests who seek authentic, local, cultural experiences,” said Patrick Denihan, chief executive of Denihan Investments.

Marriott International Inc. is also bringing a boutique brand to the Strip with Edition, a concept from luxury hotelier Ian Schrager. The project, developed by New York’s Witkoff Group, has received $260 million in financing to build 148 rooms and 20 residences.

When music venue House of Blues gets torn down, hotel Sunset Time will take that space with 149 rooms and 40 residences. Across the building, 6,000 square feet will bear digital signage, a playful nod to the Strip’s iconic vibrant billboards.

A similar project at 8950 Sunset Blvd. will create 165 rooms and four residences. The complex’s main attraction would be a clear-bottomed rooftop pool on the sixth floor acting as a ceiling for the open plaza below.

Meanwhile, the Hustler store’s days are numbered. The British Arts Club, which counts actress Gwyneth Paltrow as a minority owner, plans to open its first U.S. outpost in its place.

“No better home in the United States makes better sense for the Arts Club than the internationally renowned and iconic Sunset Strip,” said spokesman Steven Afriat.

The eight- or nine-story facility, designed by downtown L.A.’s Gensler, will include restaurants, lounges, galleries, meeting space and guest rooms for an elite cohort of arts enthusiasts paying annual membership fees of nearly $2,900. Another British-founded private club, Soho House, has an outpost nearby that has become a magnet for A-list stars ever since it opened on Sunset nearly six years ago.

At the other end of the Strip, just past West Hollywood’s city line, star architect Gehry is designing a cluster of multistory buildings with pale curving facades reminiscent of his famed Walt Disney Concert Hall in downtown.

Rough patch

But some homeowners in the affluent hills above Sunset say the Strip’s transition to a glossy future will be rough on local residents and small-business owners.

“We are not against development,” said Elyse Eisenberg, chair of the West Hollywood Heights Neighborhood Association, who has lived above Sunset since 1987. “We want the Strip revitalized. It’s just too much, too big and all at once.”

She worries that the influx of construction crews – and later, hotel visitors and entertainment seekers along with their cars – will overwhelm the narrow, four-lane street. Traffic could get snarled and parking, already tough, could become impossible. She said small businesses across from Sunset La Cienega already took a hit when construction there took away street parking.

Eisenberg also worries that developers will pick off old businesses.

“They are pushing out the eclectic and independent restaurants, music venues and nightclubs that gave the area its reputation and character and are trying to replace them with upscale, trendy venues that have not yet proven to be supported by the funky nature of the Strip,” Eisenberg said.

West Hollywood’s assistant director for community development, John Keho, said tension between old and new runs throughout the city.

“One of the key identities in West Hollywood is the struggle over how West Hollywood should grow and develop in the future,” he said. “There’s folks who like how things are and folks who feel more comfortable with change.”

Playing catch-up

West Hollywood’s hotel growth spurt was a long time coming, with roots of some projects dating to the prerecession years.

“We’re basically seeing the market catching up to the shortage,” said Atlas’ Reay, pointing out that occupancy rates far exceed the reasonable 70 percent baseline and have stayed steady despite the growth of Airbnb rentals.

After the recession, as recently as 2012, it was virtually impossible to convince banks to lend for hotel projects, he said. But now, lenders are taking note of the strong market, healthy economy and low interest rates. He cautioned that hotels should be wary of faltering international tourism due to the strengthening dollar, higher labor costs caused by minimum-wage hikes and growing competition from Airbnb. However, while New York has been criticized for building beyond demand, Reay thinks Los Angeles has room to grow.

“West L.A. in particular is one of the strongest markets in the country in terms of hotels,” he said.

Hot properties

That should be good news for the Strip’s existing hotels, now that the competition is about to intensify. Jeff Kulek, general manager at the London West Hollywood, said he does not fear newcomers will steal his business. He expects guests will return to the London for its ultraluxury environment that is more relaxing than nearby celebrity watering hole the Mondrian Los Angeles.

“You’re not going to find paparazzi swarming around our hotel,” he said.

Jeff Klein, owner of Sunset Tower Hotel, is similarly optimistic that business will stay hot, keeping his occupancy rate between 82 percent and 90 percent. After all, he said, the developments will never be able to match the history of Sunset Tower, once home to stars such as Frank Sinatra and Elizabeth Taylor.

“I’m really happy that none of them can ever be a 1929 art deco building,” he said.

But even as a connoisseur of the old days, Klein is in favor of modern upgrades sweeping away eyesore facilities such as the Tiffany Theater, which opened in 1966 and was a prominent backdrop on detective TV series “77 Sunset Strip.”

“Listen, the Tiffany Theater was gross,” said Klein. “The Strip is now going to become a safer, more interesting place.”

The proprietor is bringing some of that sanitization just south of Sunset to the San Vicente Bungalows, formerly the San Vicente Inn, which he bought a couple of years ago. Once a “clothing optional men-only hotel,” for gay men, Klein says he is turning it into a “regular clothing-required hotel,” complete with $30 million in renovations.

Revolving doors

The House of Blues was one of the biggest casualties of recent development plans. The venue, which opened in 1994 and hosted Tupac Shakur and Prince, closed in August. It will be replaced by Sunset Time’s 149 rooms and 40 residences.

To Brian Niehaus, vice president at the West L.A. office of Jones Lang LaSalle, the property’s days were numbered in a city where space is highly coveted, even if it means tearing down popular hot spots.

“The House of Blues is a funky stand-alone building with a parking lot,” he said. “If you look at this as a functional location, that’s just not a good use for land.”

Its demise came on the heels of the 2013 closure of a much older venue, the Key Club. Founded in 1967, the club once showcased the Doors, Van Halen and Guns N’ Roses. 1 Oak, a nightclub that took over the building, now hosts celebrities such as Sean Combs and Leonardo DiCaprio at glamorous parties, according to paparazzi clips posted on the club’s website.

Other venues such as the Whisky a Go Go and the Viper Room are struggling to keep influential identities in L.A.’s music scene, while the Roxy books buzzy indie acts under the umbrella of concert promoter Goldenvoice. Whether the new hotels give them a boost or the boot remains to be seen.

“I look at it as a positive thing for the market – new buildings, new designs, some of the nicest projects going on in Los Angeles,” said Niehaus. “But it’s going to change the area. Where you used to have indie rock and roll bands, it’s going to be harder for that to happen if this is more commercialized and high end.”

CBRE Group Inc. Vice President Nima Bararsani said he expects more turnover for small businesses, especially if developers piece together small lots into large parcels.

“I’m sure they’ll be approached,” he said. “Generally speaking, they either relocate or adapt.”

Last year, a partnership based at the offices of Beverly Hills developer Sonny Astani bought several neighboring stores on Sunset, including cheap-gift mecca Aahs! The 4,700-square-foot portion that houses Aahs! cost about $11.5 million at $2,400 a square foot. The adjoining parcel cost $1,300 a square foot. Astani has not revealed plans for the site, but his recent high-end projects include apartments and condos in downtown and Hollywood.

Sunset spillover

Surrounding business owners hope the new hotels will drive guests onto the streets and into their businesses. One of the latest newcomers is guitar shop Gibson, which will take over the former Tower Records site just across from Book Soup, down the block from the headquarters of dating app Tinder.

Offices may draw interest, too, especially creative spaces such as We Work and Cross Campus that appeal to startups whose employees could work late and imbibe at local watering holes.

“A lot of the people who want to be in Hollywood or the Sunset Strip are millennials,” said Colliers broker Vilgiate. “It’s not the same world we grew up in that is 9 to 5.”

Maen, one of Innovative Dining’s co-founders, has run restaurants on the Strip since opening Sushi Roku in 1997. He has sometimes struggled to keep business afloat; Sushi Roku on Sunset has since closed and the group recently replaced Italian restaurant Riva Bella with Roku, deciding to stick with its signature Japanese cuisine. Behind that space, Innovative Dining with H Wood Group added a high-end karaoke club called Blind Dragon, where Sean Penn recently hosted a Golden Globes party.

He is eager to see the new hotels attract crowds, saying, “I’d rather open up next to a busy restaurant than in the middle of nowhere.”

But Maen, who is chairman of the advisory board for the Sunset Strip Business Improvement District, said business owners should ensure the street doesn’t become too corporate, flashing with billboards like Times Square.

“We want to keep the live music scene. We want to keep the edginess of the Strip,” he said. “We don’t want to fill this up with big-box retailers that you would see nationwide at the mall.”

Brett Latteri thinks his restaurant-lounge, the Den, will see a boost from a clientele that can afford pricey room rates.

“You can assume the customer is going to be a bit more savvy and educated and polished,” he said.

He worries more about rising rent and labor costs than fresh competition, but said he is determined to adapt to the Strip’s modernization.

“You can have something super shiny that’s really nice next to something that’s 60 or 80 years old but has a lot of potential, a lot of history or character,” he said. “That’s a beautiful thing.”

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