REAL ESTATEHOSPITALITY REAL ESTATE
REAL ESTATEHOSPITALITY REAL ESTATE
Downtown Hotels Open in Late 2023
BY BRYNN SHAFFER | JANUARY 8, 2024
As the 96-year-old Ace Hotel Downtown Los Angeles closes its doors at the end of the month, as announced in an Instagram post in December, another downtown hotel has opened.
Sonder Holdings Inc., a modern tech-enabled hospitality service based in San Francisco, unveiled its latest property, The Craftsman, just one month ago.
Located at 208 W 8th St., the apartment-style hotel is an adaptation of the former Lane Mortgage Building – originally intended for office use – now featuring 110 rooms over 12 stories.
The 1923 property was designed by Los Angeles architect Loy Lester Smith and sits directly across the historic Apple Tower Theater. It has since been completely renovated.
“The Craftsman will be a wonderful addition to the downtown community, and I’m thrilled that the historic Lane Building is embarking on a new chapter as a Sonder property,” Shahram Delijani, a principal at downtown-based Delson Investments LLC, the owner of the building, said in a statement in anticipation of the hotel’s opening.
Hospitality group Sonder has been rapidly expanding and opened another hotel downtown, named The Winfield, only a few months before that.
“We’re excited to continue expanding in Southern California, with the opening of The Winfield and The Craftsman, two incredible historic buildings in downtown Los Angeles converted to hotels via adaptive reuse,” said Scott Blakeslee, area general manager at Sonder.
The Winfield, located at 406 W 7th St., was originally constructed in the late 1920s for the former retail department store Foreman & Clark. Prior to its October opening, the 125-key hotel was used as office space.
Struggling downtown market
However, as downtown continues to be a questionable place for new investment within Los Angeles, categorized by high vacancy rates and overall low levels of activity, Sonder opting to open two new properties in the neighborhood indicates its optimism for the struggling downtown market and confidence in its product.
“The vacancy that’s going on in the office buildings has really been a drag in terms of business in the downtown market,” said Alan Reay, president of Atlas Hospitality Group, which specializes in the sale of California hotels.
Downtown, which is heavily reliant on Monday through Thursday commercial traffic and business meetings – with the Los Angeles Convention Center being a major draw – was hit hard by the Covid-19 pandemic.
“I think Los Angeles is losing out to convention centers like Anaheim, San Diego, Las Vegas and Phoenix,” Reay said. “That’s a big driver of business in the downtown market.”
And, as offices continue having a hard time getting employees to return to in-person work, downtown is still struggling.
In comparison to Los Angeles’ coastal communities and the Westside, which continue to be strong tourist destinations, downtown has had a tough time attracting new visitors, particularly due to the lack of business travel happening.
On top of that, hotels in general are struggling with high interest rates and high operating costs, which, according to Reay, played a part in the Ace’s demise.
“That’s everything from labor, insurance, repairs and maintenance, everything else,” Reay said. “That’s really causing downward pressure on profitability.”
Sonder, which operates as a limited-service, mobile-first company that does not own any real estate, but instead leases its spaces out and generates revenue by renting them out to guests, does not face those same operational fears.
Because The Winfield and The Craftsman have not been open long enough to compare occupancy levels and average daily rates, it remains a question whether Sonder will keep up amid the competitive market climate and stay afloat downtown.