California hotel development rebounds


California’s hospitality industry saw a record number of room openings over the past year, signaling a rebound in development from pandemic-era lows.

According to Atlas Hospitality Group’s California Hotel Development Survey 2021 Year-End, 12,027 new rooms opened in California last year, breaking the 2019 record of 11,795. Eighty-eight hotels opened last year , just behind the 92 of 2019.

There is, however, a slight twist in the record number of rooms. Many hotel developers who had completed or nearly completed their projects in 2020 waited until next year to complete and open them, said Atlas Hospitality President Alan Reay.

“Truth be told, it wouldn’t be a banner year if we were in a COVID-free year,” he said. “There was an incredible amount of products that opened in the first quarter of 2021 just because they were delayed from 2020.”

The survey shows that in 2020, 66 hotels with 7,179 rooms opened in California. Although down from 2019 records, it surpassed 52 hotels opened in 2018 with 6,592 rooms. The previous record development year was 2017 with 66 new hotels and 10,793 rooms opened.

At the end of 2021, California had 121 hotels under construction with 15,338 rooms, according to the survey. There are 1,250 hotels in the planning stage, representing 164,352 rooms.

Anaheim once again led the state with the largest hotel to open: the 613-room Westin Anaheim Resort, according to the survey. In 2020, the 466-room JW Marriott Anaheim opened in the city.

Los Angeles County had the most hotels open with 21 and the most rooms open with 3,249. It also led the state with 26 hotels under construction, representing about 3,700 rooms.

“LA County is 25% of the market,” Reay said. “He’s such a big driver.”

The majority of hotels that opened in California in 2021 were upscale limited-service properties, under brands including Residence Inn, SpringHill Suites and Hilton Garden Inn, he said. Marriott International branded hotels lead the state in room openings with 3,886 rooms. The company also led development with 34 properties under construction, totaling 4,797 rooms.

Reay said developing a full-service hotel could take at least 36 months, meaning opening could be timed with a full recovery in hotel demand.

Still, most developers continue to focus on upscale, limited-service properties and extended-stay hotels because that’s what they know best, he said. These properties are not as risky as independent properties and lenders understand the product better.

Given supply chain and labor constraints in construction, construction started in late 2021 or early 2022 is unlikely to be completed until 2023, Reay said. Several projects in California have struggled and stalled mid-construction, but the assumption is that they will be completed.

Reay said construction costs in bids have increased by up to 30% over the past six months. Wood and steel are the two main drivers of this increase.

The development of limited-service hotels still takes at least six to nine months, he said. For full-service hotels, it’s at least an additional 12 months.

The higher costs and delays make modular construction more palatable to developers, Reay said. Modular has been on par with the normal construction schedule, but the incorporation of pre-built sections reduces overall costs.

Some companies do modular construction in the United States, but much of it is done overseas, he said, adding that he expects a big increase in modular construction once the shipping backlog will have been cleared.

Reay said he expected lending for new developments to dry up during the pandemic, but the flow of capital into the hospitality industry is driving record prices in the secondary and tertiary markets.

Markets with high land availability — unlike San Francisco, Beverly Hills or other tight real estate markets — are able to command high development prices, he said.

“We’re definitely getting more calls for sites than we’ve ever had in the past,” he said. “That, to me, is really kind of a surprise. Coming out of COVID, I would have simply expected asset prices to have fallen below replacement costs. »

Even as construction costs continue to rise in markets such as Inland Empire, Lancaster, Palmdale and Victorville, prices for existing products are driving demand from hotel developers, he said.

The banks keep their checkbooks open and the money keeps flowing, Reay said. Lenders are focusing on projects that have major brands associated with them, including Hilton, Marriott and Hyatt. They always avoid independent properties unless it’s a boutique property in a coastal area, he said.

“The vast majority of products are limited service branded, and that ticks all the boxes for lenders,” he said.

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