Orange County Business Journal
08/27/18

Anaheim Isn’t Happiest Place for Developers
By Paul Hughes

http://www.ocbj.com/news/2018/aug/27/anaheim-isnt-happiest-place-developers/

A sizzling summer for Anaheim hotels is getting hotter in more ways than one.

Room rates and occupancy levels are healthy, according to recent data from CBRE Hotels, and the city’s two largest trade shows officially re-upped at Anaheim Convention Center for several years apiece, according to destination marketer Visit Anaheim.

However, a less welcoming city council and a November ballot measure linking a minimum hourly wage to hotel incentives are bringing simmering tensions to a boil.

At stake is whether developers will pour $1.1 billion into three new hotels; two other projects valued at $550 million are already underway but could also be affected.

Disneyland Resort said its part of the overall investment, a planned $625 million luxury hotel, is on hold and that it wants out of deals with the city covering bed and gate taxes. Other area hotel developers are also expressing doubts about their projects.

To be sure, hotel development near the convention center and Disneyland remains strong and spreads to the rest of the city and neighboring areas. Anaheim has touted $4 billion in leisure and hospitality investments overall.

Resort Revenue

Anaheim’s 83% hotel occupancy in the first half of the year was the highest of seven OC submarkets, CBRE said. Average daily rates of $199 and revenue per available room of $166 over those six months were up 6% to 7%, respectively. Only the coastal submarkets commanded higher rates.

The city has 20,000 hotel rooms; its hotels paid $150 million from a 15% transit occupancy tax—TOT or “bed” tax—on rooms sold in fiscal year 2017, and Anaheim has adopted projections showing that amount will rise another $6 million in each of the next two years.

Most of that growth would come from the 1,100-acre Anaheim Resort district, an area that surrounds the resort and convention center. About 84% of Anaheim’s rooms and about half of its 146 hotels are in the district.

Room Rates

Development also remains strong, much of it driven by Star Wars: Galaxy’s Edge, which is scheduled to open next summer in a 14-acre area at the park, and a 200,000-square-foot convention center expansion that opened last fall.

This month, OC’s two largest trade shows by attendance—National Association of Music Merchants (NAMM) and Natural Products Expo West (NAPEW)—booked their spots at the center through 2023 and 2022, respectively.

NAMM, which is the convention center’s largest show every year, attracted 115,000 attendees in January, up 7% from a year earlier. NAPEW, the second largest show at the center, brought in 85,000 in March, up more than 8%.

Area construction continues to boom, as 26 hotels with 7,600 rooms are planned or being built in the city and next-door neighbor Garden Grove, according to consultant-broker Atlas Hospitality Group in Irvine.

That’s 36% of the 72 hotels and 58% of 13,150 rooms planned or being built countywide, according to Atlas.

Anaheim-area projects include several high-end and boutique names, such as Hyatt Regency, Kimpton and Le Méridien. Prominent projects in the resort district include:

• The high-end Disney hotel on Disneyland Drive west of its parks.

• Affiliates of Wincome Group have one under construction near the convention center and one in planning east of Harbor Boulevard from Disney.

• A partnership of O’Connell Hotels & Hospitality in Anaheim and Orange-based Prospera Hotels is building one hotel and plans a second near GardenWalk, a shopping and restaurant center.

The five district hotels would combine for 2,800 rooms and an investment, including land, topping $1.65 billion, according to Business Journal analysis.

Interesting Times

“Our first hotel is under construction,” said Bill O’Connell, co-developer with Ajesh Patel of the GardenWalk hotel. “Our second is in jeopardy.”

Even though the economy is going great, O’Connell said Anaheim’s political climate has “a bad atmosphere.”

“Some of the politicians are anti-Disney, feeding into union discontent,” said O’Connell, who’s lived in Anaheim for 50 years. “I’ve never seen anything like it.”

Following public pressure—including planned protests and a study released this past spring on wages paid at the parks—Disneyland Resort raised pay for about a third of its park workers. A city ballot initiative in November sets an $18 per hour minimum wage for workers at hotels getting bed tax rebates starting Jan. 1, 2022, a graduated increase from $15 per hour starting Jan. 1.

Under the 2015 council-approved rebate plan, a AAA four-diamond rated hotel can be reimbursed 70% of the bed tax for 12 to 20 years after it opens. The Disney, Wincome and O’Connell-Prospera hotels have the deal.

The city ended the incentive program in December, Anaheim spokesman Mike Lyster said in an email.

Downtime Disney

Disneyland Resort has said it no longer wants the incentive.

Resort President Josh D’Amaro, the company’s top executive in Anaheim, sent a letter to the city last week seeking to end its rebate agreement and a second involving minimum investments in the resort in exchange for no city tax on park tickets.

“The current level of animus is unprecedented and counterproductive,” D’Amaro wrote. Recent disputes “have become divisive, leading to an unstable business climate and a difficult working relationship with the city.”