Increased construction costs and high interest rates are taking a toll on hotel construction in Los Angeles and the rest of the state.
Los Angeles County still leads California in building new lodging, with 21 hotels and 2,329 rooms under construction the first half of the year, according to a mid-year report from Irvine-based Atlas Hospitality Group.
However, the number of rooms under construction in the county is down by 42% compared to last year at the same time. The number of hotels under construction is down 28% compared to the same time last year, according to the Atlas Hospitality report.
“Smaller projects with fewer rooms are what are in the pipeline to open within the next year,” said Robert Feist, vice president of Atlas Hospitality. “It’s clearly market driven as far as financing, interest rates and cost to build.”
Feist noted that pre-pandemic, the number of projects and rooms under construction were almost double the current rate during the stronger market in 2018 and into 2019, when there was more available financing and reasonable construction costs. Then Covid-19 slowed or stopped most hotel construction in 2020.
“All of those projects that were in the pipeline or under construction pre-Covid that were coming out of the ground opened up in 2021,” said Feist. “We saw a very strong market in 2021 as far as our development was concerned. Since then, because development projects take such a long time, the pipeline shrank to a fraction of where it was prior.”
Due to the higher interest rates and lack of construction financing, Atlas Hospitality is forecasting the downturn in new hotel construction will continue for at least the next 18 to 24 months.
“It’s sub-150-unit hotels (currently underway), and a lot of them look to be more in the limited-service space. Those are cheaper to construct,” said James Stockdale, managing director at JLL Hotels & Hospitality Group. “You’re talking about a wood-frame building as opposed to reinforced concrete or steel that’s going to be more expensive. It’s going to require less labor to put up a limited-service hotel versus a full-service hotel. It is just simply because they’re cheaper to build. They’re easier to build.”
It’s not just development that is lagging behind pre-Covid levels. Individual sales of L.A. hotels were down almost 53% in the first half of this year compared to the same time last year. The median price per room declined by 13% in the same time period.
By comparison, Southern California sales were down 59%.
All California counties experienced a decline with San Bernardino County down the most with a 95% decline in sales, followed by Sacramento County, which was down 86%, according to Atlas.
The Atlas report noted that the only other year that had seen such a significant decline in individual hotel sales was in the first half of 2009, when sales were down 51%.
Despite the declines, business is still moving forward with several projects. Six hotels debuted in Los Angeles County in the first half of the year. The largest project to open during so far this year was the Moxy Downtown Los Angeles and AC Hotel Downtown Los Angeles, a double-branded hotel with 727 rooms. The Jordan Hotel in San Gabriel is the largest hotel project in the county under construction; it has 225 rooms and is expected to open in July of next year.
“As the rate environment gets better, these construction projects will pencil more and that will potentially help fuel additional demand,” Stockdale said. “But for existing hotel owners, you know, fewer hotels in the pipeline is a good thing.”
But large-hotel construction will likely be rare in the coming months, according to Feist.
“The bigger hotels are more difficult to work out as far as feasibility, cost and financing,” said Feist. “Smaller projects are easier to finance, less expensive. That makes it easier for those to get out of the ground. We expect that for the near term.”
Moxy Downtown Los Angeles & AC Hotel Downtown Los Angeles
Address: 1260 S Figueroa St., Los Angeles
Developer: The Lightstone Group
Completion Status: Opened in April
The Moxy Downtown Los Angeles & AC Hotel Downtown Los Angeles sits across from the Crypto.com Arena. It has 37 stories, 727 rooms and 13,000 square feet of event space. The dual-branded hotel is operated by Marriott International. The Moxy brand is targeted at younger travelers with smaller rooms at a less expensive price point than what the AC Hotel offers. The structure is also home to Level 8, a collection of eating and drinking establishments on the shared eighth floor. The exterior of the building has a 15,000-square-foot electronic billboard.
AC Hotel Pasadena by Marriott
Address: 550 E. Colorado Blvd., Pasadena
Developer: Welcome Group Inc.
Completion Status: 2025
The AC Hotel Pasadena, located in Pasadena’s Playhouse District, broke ground in June. The 100,000-square-foot project will have 194 rooms and a rooftop bar. It is a mixed-use property and will have 5,000 square feet of leasable space on the first floor.
Whisky Hotel Hollywood
Address: 1717 Wilcox Ave., Hollywood
Developer: Adolfo Suaya
Architect: Roschen Van Cleve Architects and CK Architecture
Construction Status: Completion date to be determined
Construction commenced in 2020 on the seven-story, 132-room Whisky Hotel Hollywood. The hotel will be whisky-themed with a bar and restaurant in the lobby and a rooftop lounge and bar. The project, which is just north of the Hollywood Walk of Fame, will create 778 jobs. The project was originally slated to open last year.
The Jordan Hotel
Address: 111 West Valley Blvd., San Gabriel
Ownership: Landwin Corp.
Interior Design: Atwater Inc. Studio
Completion Status: Expected to open in July of next year
The Jordan Hotel is currently the largest hotel under construction in Los Angeles County, with 225 rooms and suites. It will also feature a grand ballroom, restaurant and pool, as well as a spa and other amenities. It is part of the Curio Collection by Hilton and is located across the street from the San Gabriel Square Mall.