CoStar
05/06/19

At Age 131, Hotel del Coronado Gets 21st Century Upgrades
Iconic San Diego Property in Midst of $200 Million Renovation
By Lou Hirsh

https://product.costar.com/home/news/shared/580709569

Upcoming renovations at Hotel del Coronado, which opened in 1888, include 142 additional guest rooms, a new conference center, an overhauled main entrance and new on-site dining and social spaces.

Private equity giant Blackstone Group is embarking on a $200 million renovation of its historic Hotel del Coronado, marking the largest overhaul in the 131-year history of one of San Diego’s — and California’s — most iconic hospitality properties.

Operators are adding 142 guest rooms to the 757-room property, building a conference center and moving most of its parking underground to make way for more outdoor space to accommodate beachside dining and strolling. It’s all part of efforts to preserve the Victorian-style hotel’s rich history and architecture, while keeping it competitive with a slew of niche luxury brands being rolled out by the major chain hotel operators.

“We wanted to make sure to keep this property relevant to what consumers want in a vacation spot, but still keep those things that make it so unique,” said hotel spokeswoman Stacey Ellis.

Hotel Del Coronado’s latest reinvention comes as hotel competition in San Diego’s bustling tourism industry has been ramping up in recent years, especially in the upscale and luxury categories. New brands and boutiques have been spreading across the region and attracting a growing millennial tourism market that looks for more modern and experiential amenities, forcing older brands to adapt to keep up.

Located at 1500 Orange Ave. in Coronado, just west across the bay from downtown San Diego, Hotel del Coronado has been managed for the past several years by hotel giant Hilton Worldwide and remains among the region’s biggest hotels by room count. It employs 1,200.

Opened in February 1888, Hotel del Coronado has undergone numerous renovations and expansions over the decades but has maintained many of its original late-nineteenth-century design elements, including its distinctive turrets which have made it a popular staple of post cards, television shows and major movies. It was featured most prominently in director Billy Wilder’s 1959 comedy “Some Like It Hot,” in which Marilyn Monroe frolicked on its white-sand beach.

The property, which remains open during renovations, to this day has little difficulty attracting vacationers who keep its rooms at near-full capacity for much of the year. Additional day visitors drop by seeking a trip back in time along with the panoramic ocean view.

But operators still felt the time was right to make better use of the property’s exterior areas and to update its restaurant and pool areas while boosting the level of onsite conference and meeting spaces. The improvements are expected to help diversify its year-round income streams.

Work began in late 2018 on the parking areas, where most of its current vehicle spaces are being moved underground and replaced with more spots where the hotel can establish new dining venues, social spaces and promenades. The multiphase project, expected to conclude in late 2021, also includes a complete overhaul of the hotel’s main entranceway, which currently serves mainly as a passage to parking lots.

When completed, operators said the new entryway will feature lush landscaping, with a driveway and upgraded façade harkening back to the hotel’s early days when it gave a grander visual welcome to visitors – in the days before cars were even invented.

“There’s probably not any part of the hotel that’s not going to be touched in some way,” Ellis said of the renovation.

Competitive Renovations

The renovated Hotel del Coronado will join an increased hotel landscape in the region. Among the newest, a 400-room InterContinental Hotel opened on the downtown San Diego waterfront in September 2018, and the luxury-oriented Pendry San Diego, an off-shoot of Montage Hotels, debuted in 2017 in downtown’s Gaslamp Quarter.

A variety of new luxury hotels are likely to be in the mix as planned mixed-use developments move forward in coming years at downtown’s Seaport Village and the U.S. Navy’s nearby southwestern headquarters campus.

San Diego, like other tourist destinations, has also seen the rapid expansion of numerous boutique niche brands being rolled out by the major hotel operators, such as Hilton’s Canopy, Marriott’s Moxy and Hyatt’s Andaz.

Many of these venues capture younger millennial-age visitors, which Hotel del Coronado will probably be courting with elements like its upcoming new dining venues, indoor-outdoor bars and upgrades to its pool deck and cabana areas.

Alan Reay, president of hotel brokerage and research firm Atlas Hospitality Group in Irvine, California, said Hotel del Coronado’s operators appear to be taking sensible steps to address the competitive realities, maintaining the property’s core charms and investing in needed upgrades while the Southern California tourism economy remains relatively strong by historical standards.

“It is happening more, especially with the luxury properties, as you have more of these other upscale brands coming into the market,” Reay said. “This is probably going to be the case for at least the next two or three years, as the luxury operators set more resources aside for these competitive renovations.”

Blackstone, based in New York, had intended to sell Hotel del Coronado in 2016, as part of a larger planned $6.5 billion sale of a 16-property U.S. hotel portfolio to China’s Anbang Insurance Group. But according to Bloomberg News, Blackstone decided not to sell the Coronado hotel after a federal panel – the interagency Committee on Foreign Investment in the United States – began reviewing the proposed sale over national security concerns.

The apparent sticking point was Hotel del Coronado’s location, which would have put Chinese interests in close proximity to two large U.S. Navy installations on the same island of Coronado. The federal panel never issued a formal report, and Blackstone has never commented on the matter.

According to equity research firm Green Street Advisors, Hotel del Coronado as of 2016 had an assessed value of $588 million, though its market price was likely far higher – about $1 billion, thanks to its size, history and tourist-attraction value.

Blackstone has owned the hotel twice. Most recently, it acquired Hotel del Coronado from Chicago-based Strategic Hotels & Resorts Inc. in December 2015, as part of a larger $6 billion, 17-property U.S. portfolio deal.