California hotel construction explodes, but fewer are planned
Hotel construction is booming in California as well as North Bay, according to a new report from a real estate brokerage firm specializing in such properties.
Fifty-one new hotels with 7,168 rooms have opened statewide so far this year, a 38% increase from last year, according to Atlas Hospitality Group.
Statewide, with new hotel openings in the state on the rise this month and 132 under construction, that’s less than the 194 reported last July, according to the brokerage based. in Irvine.
In Sonoma, Marin, Napa and Solano counties, 83 hotels are in various stages of planning, according to the survey. This includes five projects with 537 rooms under construction in North Bay.
Some of these projects have been licensed for several years, and experts say some may never be completed.
Atlas President Alan X. Reay said there are several factors behind the spike in future hotel planning activity.
“California hotels are posting record profits and revenues,” he said. “In addition, the trend of buyers of existing hotels has pushed prices to such an extent that it often makes more sense to build a new one. This growth is set to occur despite rising construction, labor and material costs, as well as higher tariffs on Chinese-made furniture favored by hoteliers. Taking all factors into account, the cost of building a new hotel has increased by 15-20%.
He said low interest rates and the promise of high income make building a hotel a better bet for some developers.
“The pace of purchasing existing hotels has increased, but more and more developers are now investing in the future. In the past, many builders have built new hotels with the intention of selling them immediately. Now the developers believe in building for the long haul because they see California as a great place to be, ”Reay said.
Sonoma County has the most hotel construction pending in the backlog inventory, with 34 in pre-construction. Napa has 32 hotels in the planning stages plus two under construction, and Marin has seven hotels awaiting a start date and three under construction. Solano has 10 hotel projects in the square category.
The five North Bay hotels currently under construction include the AC Hotel in San Rafael; the Hyatt House in Novato; Stanley Ranch Resort and the Cambria Hotel Napa Valley in Napa, and the Four Seasons Resort in Calistoga.
Elsewhere in northern California, Sacramento County is also experiencing a hotel construction boom. Some 32 hotels with 4,191 rooms are in the planning stages, an increase in accommodation of 20% over last year. Earlier in 2021, the 124-room Hilton Garden Inn at Sacramento Airport (Natomas) opened, as well as the 105-room Home2 Suites by Hilton in Roseville.
There are nine additional hotels under construction in the state that will add 1,045 additional rooms as well as major hotel expansions underway both at Thunder Valley Casino Resort near Lincoln in Placer County near Sacramento and at Cache Creek Casino Resort in Yolo County.
While hotel developers are optimistic as momentum builds to fuel a new wave of hotel construction, Reay says the majority of unfinished hotel projects still on record have received permits before 2020.
As fixed costs continue to rise, he warned that only around 15% of the list of proposed hotels could actually be built if permits have expired or if the cost of construction, especially wood and steel, access to labor and reasonably priced construction materials is prohibitive. , as well as the inability to obtain bank financing for construction.
He said the hotel model was changing with less emphasis on hotels with low-margin restaurants and more on the concept of a residence-inn with kitchenettes, pools, spas and other amenities.
Developers can also re-apply for permits to convert original concepts into private clubs or Airbnb-style accommodations without a reception, or they can choose to postpone or abandon their proposed projects if the balance sheets don’t run out and wait for that. economic conditions are improving.
At the same time, Reay said there was a shortage of hotels, with 100 or more hotels in California purchased by municipalities and nonprofits converted to low-income housing or homes for the homeless. – shelter as part of the Home Key project, a grant program for agencies. to acquire hotels, motels, apartments and other buildings to provide housing for people experiencing or at risk of homelessness.
“Atlas began publishing a biannual hotel development survey and a separate sales survey 20 years ago, using a comprehensive research team to track the market. We’ve never seen a market like this, with the price paid for existing properties selling for between $ 2 million and $ 2.5 million per room in some cases. The market is really changing and I would never have predicted the unprecedented volume of activity that is creating a bubble in the hotel industry today given the rapid rise in prices.