A real estate firm that tracks the state’s hotel industry has released its midyear hotel development report, which shows a sector that largely remains stalled in the face of an uncertain economy.

Among the findings, over the past two years as of June, California has seen a decline of more than 60% in the number of new hotel openings, according to Atlas Hospitality Group’s California Hotel Development Survey 2023 Mid-Year. The firm also releases a year-end survey.

The midyear report isn’t surprising to Alan X. Reay, president of Atlas Hospitality, a Newport Beach-based real estate brokerage firm that specializes in hotel properties.

Reay said he also expects new hotel projects in the planning stages to remain mostly on ice for another 18 months to two years.

“You have lenders now that are pulling back from making loans altogether,” said Reay. “It is extremely difficult to get a lender to look at a construction project because of the unknowns.”

Inflationary pressures, supply-chain challenges and ongoing labor shortages that arose from the pandemic continue to obstruct progress in hotel projects, Reay said.

Hotel construction loans are typically for two years, he said, and with the unknowns in interest rates, it’s too risky for lenders. Borrowers that can secure a loan generally won’t get more than 50%, he added.

“Developers typically don’t want to tie up that amount of capital,” Reay said. “They want to get as much leverage as they can.”

Between January and June, 20 new hotels have come online in California — a decline of 31% over the same period one year ago, according to the Atlas report.

Los Angeles County led the state, with six hotels opened by mid-2023, according to Atlas.

Local openings and construction

Within the six-county North Bay region, three hotels have opened between January and June, including the long-planned AC by Marriott in downtown San Rafael. The 140-room property, now known as AC Hotel San Rafael, began welcoming guests Aug. 2.

Construction started on that project in October 2019 but was halted during the pandemic, according to Tom Monahan, co-owner of San Rafael-based Monahan Pacific Corp. He spoke with the Business Journal on several occasions throughout COVID-19.

Also having opened by midyear were the 140-room Hyatt House Vacaville and the 104-room Residence Inn Fairfield in Solano County, and the 140-room Home2 Suites Petaluma in Sonoma County.

There are currently six hotels under construction in the North Bay, according to Atlas.

• Marin County: Hampton Inn & Suites San Rafael (99 rooms), Hyatt House Novato (87 rooms) and Home2 Suites San Rafael (85 rooms).
• Sonoma County: Cotati Hotel (152 rooms) and Appellation Healdsburg (108 rooms).
• Napa County: Home2 Suites American Canyon (102 rooms).

Atlas is now putting the final touches on its midyear hotel sales survey, Reay said.

“The difference between our sales survey versus the development survey is that the sales survey is a more accurate depiction of where we’re at in the market and in the economy,” he said. “The reason (is that) developments and new construction take so long, whereas when the market shifts, we see it almost right away in the sales.”

Cheryl Sarfaty covers tourism, hospitality, health care and employment. Reach her at cheryl.sarfaty@busjrnl.com or 707-521-4259.