By Donald Morrison | Mar 18, 2022 07:29am

https://www.hotelmanagement.net/operate/lodging-leaders-discuss-californias-comeback-clic

ANAHEIM, CALIF. – Market recovery, inflation and high construction costs in a post-pandemic world were three of the hot topics discussed by lodging industry leaders at this year’s recent California Lodging Investment Conference.

The fifth annual CLIC event was held in-person for the first time in two years on March 10 at the JW Marriott Anaheim (Calif.) Resort. Just over 250 attendees registered for the event, according to CLIC’s founder and president, Craig Sullivan.

“Everybody here is in the California hotel market, that’s all we’re focused on,” Sullivan said. “It’s the first time any of us have been together in-person in over two years.”

The event kicked off with a keynote address from Bruce Ford, SVP and director of global business development at Lodging Econometrics, who used a range of lodging data to paint a picture of the state’s lodging industry and how it plans to recover in the wake of the COVID-19 pandemic.

“Much of what owners and management companies have faced over the past 24 months has been no return on investment,” Ford said. “They’re interested in renovations today. They’re interested in brand conversions. They’re interested in getting back to the return on investment of their portfolio.”

Big Picture

While the early planning stages of hotel development continue to grow, new construction starts and under construction projects continue to decline due to pandemic-related delays and price increases.

According to data from LE, in the fourth quarter of 2020 there were 1,487 under construction hotels in California. In the fourth quarter of 2021 there were 972. Overall, there’s been an 8 percent decrease in the number of projects entering the construction pipeline. Ford said there are now more new hotel openings happening than there are new construction announcements.

“It’s still a little murky for new construction right now,” Ford said. “Again, a lot of people like to build in the down cycle, but we still are in a down cycle. We are just beginning the recovery.” Leisure travel has made a near full recovery, while business travel has been sluggish. That means hotels with large outdoor areas are recovering quicker than hotels with, or near, convention centers. But that’s beginning to change.

“We’ll see many of those markets again come to life in the third and fourth quarter, which will be excellent to see,” Ford said.

Ford said the upscale and upper-midscale hotels are still dominating the market with brands that appeal to the leisure segment benefiting from that group’s stronger recovery. Upper-midscale hotels are the most popular to build right now, with 1,801 projects currently in the construction pipeline. This is followed by upscale with 1,297 projects in the pipeline. Casino and luxury properties had the lowest number of projects in the pipeline, with 19 and 79, respectively, according to LE data.

Ford and LE predict a full recovery of the market by the end of 2023 or the beginning of 2024—but it will come with a price.

“The economics of running a hotel have changed so much during the pandemic that it will ultimately cost 25 percent more to stay in a hotel,” Ford said. “When we get to that point it will feel like we’ve recovered.”

California

California is a diverse state with numerous different hotel markets that have all been impacted differently during the pandemic. The state boasts plenty of excellent leisure destinations that have been able to make a fast recovery. But other events like the closing of Disneyland for 16 months and the lack of big conventions have had drastic impacts for hotels in the area.

“It’s a mixed bag,” Ford said. “Sacramento is an active market for acquisitions, conversions and renovations, but not as active for new construction. But when we flip to San Jose it’s almost the opposite.”

The Inland Empire, comprising San Bernardino, Riverside and Palm Springs, has benefitted from having tons of outdoor space and golf, becoming one of the most successful areas for hoteliers.

“Palm Springs is where it’s all happening,” Ford said. “This is a market that outperformed during the pandemic. It’s in a great position to see quite a bit of renovation activity because they did better than average.”

Los Angeles, the biggest market in the state and one of the biggest markets in the country, saw 3,463 hotel rooms open up in 2021, with LE data predicting a small decrease to 3,081 in 2022 and a larger decrease to 1,367 in 2023. Ford said this is due to owners being more cautious about starting projects in the face of continuing pandemic-related uncertainty.

San Francisco remains expensive to build in, so there aren’t many new construction projects sprouting up in the downtown area. Most of the San Francisco activity is happening in the suburban market.

Extended-stay hotels and long-term-stay offerings will continue to play a larger role in the state’s hotel industry supply, according to Ford.

Panels

The conference featured several panels, including a hotel brand panel that was moderated by Jenny Redlin, a national client manager with Partner Engineering and Science. Redlin led a discussion on the importance of brand models and the lessons learned from the pandemic.

“More than ever the owner is at the front desk or cleaning rooms,” said Kevin Schramm, SVP of development at IHG Hotels & Resorts. “I think employment is the big elephant in the room. I think eventually people are going to get back to work but it’s all about how we can convince them to return to this industry.”

“I don’t care if you’re a logger, truck driver or hotelier, every industry has a labor crunch,” said Matt Hostetler, chief development officer at Red Roof. “What are we doing differently to attract that next generation of hoteliers? Owners, entrepreneurs, that’s what we all need to be thinking about in this room.”

The hotel development panel was moderated by Sullivan and podcast host Glenn Haussman. The panel featured guests who were directly involved in the project to fund, design and build the JW Marriott Anaheim Resort, which opened in August 2020 and has 466 rooms and 19 suites. The panel included Kay Lang with Kay Lang + Associates, who helped design the hotel; Swati Patel, SVP of development and design at Prospera Hotels, and Ron Kim, COO with Prospera, who helped fund the project; and David Sudeck, a partner at Jeffer Mangels Butler & Mitchell, who helped with legal work. Ford presented the first ever award for Development of the Year to the panelists for their role in opening the JW Marriott.

Sullivan ended the day by presenting the second annual Lifetime Achievement Award to Alan Reay, founder and president of Atlas Hospitality Group.

“Twenty-three years and three months ago hotel brokerage in the state of California changed,” Sullivan said. “Nobody has closed more deals in the Golden State than Alan’s team at Atlas Hospitality. This gentleman has had a direct impact on everybody in this room and it is my honor to present to [him] the second Lifetime Achievement Award.