The Marriott property is one of only two hotel projects in the county to break ground this year

By LORI WEISBERG | The San Diego Union-Tribune

PUBLISHED: June 27, 2024 at 6:00 a.m. | UPDATED: June 27, 2024 at 10:47 a.m.

A new seven-story hotel that will include a number of extended-stay guestrooms will soon be rising in Mission Valley adjacent to a longstanding Marriott where tennis courts once operated.

The 148-room property on Rio San Diego Drive will be Marriott’s first Element by Westin-branded hotel in San Diego County and one of the first newly constructed hotels to open in Mission Valley since 2016 when the 135-room Springhill Suites made its debut.

While the new development is not considered part of the increasingly common dual-branded hotel concept, the Element will be able to take advantage of some of its next-door neighbor’s amenities, like its restaurant and resort-style pool.

Developing the $72 million project is Driftwood Capital, a Florida-based commercial real estate investment firm that purchased the San Diego Marriott Mission Valley in 2019 and recently opened an Element hotel in Melbourne, Fla. The site where the Mission Valley Element is being built at one time housed tennis courts and a parking area where Driftwood erected a semi-permanent tented area for meetings.

The tennis courts had not been open for use since Driftwood acquired the 35-year-old Marriott.

Redeveloping the site made financial sense, Driftwood said, given the continued development in Mission Valley — most notably the addition of Snapdragon Stadium and expansion plans by San Diego State University — and a need for more hotel rooms in the surrounding area.

Daniel Katz, vice president of asset management for Driftwood, noted that the inventory of hotel rooms in Mission Valley has decreased over the past several years, in part due to the revamp of the Town and Country resort, which downsized to make way for hundreds of new apartments. In addition, a Residence Inn was acquired by the San Diego Housing Commission to provide housing for people who are homeless.

“If you look at Mission Valley’s upper priced hotels, that set runs around 77 percent occupancy for the Mission Valley submarket alone and when you peel back the onion further and look at our direct competitors (to the Element brand) in Mission Valley, those run at almost 90 percent occupancy, so we think there certainly is demand for that market,” Katz said.

He noted that overall supply has dropped 8 percent since the end of 2019 — from 6,388 to 5,901 guest rooms.

“Coupled with that is the fact that it is incredibly difficult to develop in San Diego,” Katz added. “We’ve been working on entitlements since 2019, so it’s been a five-year process just to be able to break ground. We really believe by building a hotel now, we’re going to be the newest product in town and we will be that for some time.”

The only other hotel project to break ground in the county this year is the dual-branded Home2 Suites(156 rooms) and Tru by Hilton (119 rooms) on Fifth Avenue in downtown San Diego, according to Atlas Hospitality Group. Together, they account for 275 rooms. Katz said he expects room rates at the new hotel to be more than $250 a night.

The Element, a brand known for its larger extended-stay-style rooms; clean, contemporary design; and focus on wellness, will include 5,000 square feet of ballroom and meeting space enclosed by glass looking out onto an outdoor plaza area that will be shared with the meeting space for the adjoining Marriott, explained Bruce Greenfield, a partner with the AO architectural firm.

The lobby, which will be wrapped in glass on three sides and will offer views of the San Diego River, will have plenty of lounge seating to accommodate a breakfast buffet in the morning and coffee service throughout the day, Greenfield said.

The facade of the new hotel will feature a six-story-tall wood arch that will frame the entry, complemented by a “green wall” that will be covered with an ivy-like plant, Greenfield said. The plant wall will be about 15 feet tall.

There will be a mix of room types, including king and double queen rooms, although the majority will be suites. One guestroom feature unique to the Element hotels will be a concept known as Studio Commons, where guests can rent a spacious living area and fully equipped kitchen anchored by four private guest rooms.

“It would work for, say, a family reunion,” Greenfield said. “It’s sort of like an Airbnb concept.”

The new project comes at a time when development of hotels is slowing considerably in California because of rising construction costs and still-high interest rates. Alan Reay, head of Orange County-based Atlas Hospitality, said he’s seeing more troubled projects given those two factors, although not in San Diego County,

“We’re now seeing a lot of projects being deferred or abandoned and that’s primarily due to the fact that cost of construction has gone up dramatically as well as the cost of financing from where it was 18 months ago,” Reay said. “And we have multiple hotels under construction now in foreclosure, going into bankruptcy or being foreclosed on. There are two in Los Angeles and at least three or four in the Coachella Valley.”

Katz noted that on the cost side, the Element hotel, once completed. will be able to take advantage of economies of scale, given the neighboring Marriott. He also has found that interest rates and construction costs have started to stabilize. Driftwood, he said, was able to secure financing through a regional bank at a decent rate.

“The biggest change in the capital markets is … you’re having to raise more capital,” Katz said. “That’s not a challenge for us here, given how the (adjoining) Marriott has performed. “And even if we are dinged by interest rates in today’s market, you’re not penalized when we open the hotel because there’s no other hotel opening in the area at the same time.”