It was just a year ago when hotel construction was flourishing across California, but six months into 2022 paints a different picture.
By the end of 2021, there were 121 hotels under construction across the state, with more than 15,000 rooms planned, according to Atlas Hospitality, a Newport Beach-based real estate brokerage firm that specializes in hotel properties.
Now, new hotel construction in the state is on a downward trend, with the number of new properties breaking ground having declined by 12%, according to Atlas. The number of new hotel openings declined by 43%, and the number of new rooms opened was cut in half.
“There is no question we have seen a dramatic slowdown in terms of new construction,” said Alan X. Reay, president, Atlas Hospitality. “With rising interest rates, a lot of lenders are definitely pulling back from the hospitality market.”
Inflationary pressures, supply-chain challenges and ongoing labor shortages aren’t new, but it’s all worsening with talk of a recession and the uncertainty of the economy, he noted.
“The bottom line of all of this is that if you are not already under construction, or you already have your construction loan from your lender,” Reay said, “then it is going to be extremely difficult to get your project off the ground.”
In the North Bay, this may help explain the high volume of projects in the planning stages compared to the scant number of projects under construction. In fact, at this time, even listed planned projects have an uncertain chance of moving forward, Reay said.
“We see that continuing until we have a clearer picture with inflation and the economy and everything else,” Reay said. “The last time we saw this kind of drop off in construction was back in 2009, and it did not really pick back up until 2015.”
Within the North Bay six counties, there are more than 80 projects listed in the planning stages and four projects currently under construction: two in Solano County and one each in Sonoma and Marin counties.
A 140-room Hyatt House in Vacaville and a 104-room Residence Inn in Fairfield account for the two Solano County projects. A 140-room Home2 Suites in Petaluma is the hotel under construction in Sonoma County.
The Marin County project, a downtown San Rafael AC by Marriott, broke ground in October 2019 before the pandemic halted construction, but that project has since regained its momentum and is on track to open early next year, Tom Monahan, co-owner of San Rafael-based Monahan Pacific Corp., told the Business Journal in February. And that remains the case, according to a July 9 report from the Marin Independent Journal.
But to Reay’s point, the estimated $25 million price tag for the AC by Marriott is no longer realistic, with Monahan having told the Business Journal in February that “when we get the final bill, it will be substantially more than we anticipated.”
Meanwhile, the hotel real-estate brokerage firm is seeing healthy revenue and profits in leisure markets like Wine Country, but that doesn’t equate to more hotels, said Reay, who founded Atlas in 1997.
“So, you would think, ‘OK, you’ve got record revenue, record profits, so we should be selling for record prices, which means we should have more construction,’” Reay said. “The issue with markets like Napa, Sonoma County or any of the drive-to markets, is that it’s usually very, very difficult to find land and then get the number of rooms you want to build approved.”