San Diego County Leads State in New Hotel Development

08/03/16

San Diego County Leads State in New Hotel Development
By Thor Kamban Biberman

San Diego County has added six hotels with 1,017 rooms so far in 2016 — the largest number of hotels of any county in the state, according to Atlas Hospitality Group.

“We’re forecasting a huge uptick in hotel development,” said Alan Reay, Atlas Hospitality president. “The main reason is the huge price investors are paying for existing product.”

On July 22, a unit of Carey Watermark Investors paid $130.85 million for the 372-room Marriott La Jolla being developed in University Towne Centre. The price works out to $351,750 per room.

The largest hotel to open in the county this year was the dual-branded, 253-room SpringHill Suites and 147-room Residence Inn on Lane Field North along Harbor Drive.

In addition, Atlas noted there are four other hotels with 957 rooms currently under construction in San Diego County.

The largest in progress is the 400-room InterContinental Lane Field South at West Broadway and Pacific Highway in downtown San Diego.

The Lane Field development team includes developer Portman Holdings, designer John Portman & Associates, Hensel Phelps Construction, and Lankford & Associates.

The 19-story InterContinental, which The CoStar Group expects to be completed in September 2018, will be operating under a 66-year lease from the Port District.

Hong Kong-based China Orient Asset Management International provided equity financing, while PNC Bank and Regions Bank provided construction loans for the $217 million development.

The InterContinental development will consist of the hotel, along with 33,000 square feet of retail, a conference center with dual ballrooms, smaller meeting rooms and pre-function spaces.

The third level of the complex will be the lobby crossover floor, composed of the lobby bar and restaurant, linking the shuttle elevators to the room tower elevators.

The room tower is placed at the south edge on Broadway. A public sky bar at the top of the tower will overlook the bay. The complex will be served by a 686-space subterranean parking garage.

Reay projects the InterContinental will settle at a stabilized occupancy of about 75 percent within the next 18 months.

Given the construction cost and the strength of the San Diego Bayfront market, Reay believes the InterContinental should command an average room rate of around $350 per night.

Dual-branded hotels are becoming more common. Along with SpringHill Suites and the Residence Inn on Lane Field North, another dual-branded hotel is opening nearby at 2137 Pacific Highway — the 204-room Hilton Garden Inn and a 160-room Homewood Suites.

While Mission Valley may be packed with hotels already, a couple more are under construction, including a 135-room SpringHill Suites at 2401 Camino del Rio North; and a 118-room Homewood Suites at 445 Camino del Rio South.

The county has a total of 52 hotels in the pipeline with 10,439 rooms in some level of the planning stage.

The Atlas report said the United States hotel market is experiencing explosive growth in new construction and projects in the works.

Through the first half of 2016, the U.S. reports 164,860 rooms in 1,259 projects under construction. This represents a 27.3 percent year-over-year increase in room counts.

With 17,236 rooms under construction, California accounts for 10.5 percent of the United States total. The state has a record 563 new hotels with 84,231 rooms in various stages of planning.

“The economics are very strong and lenders are looking to make construction loans,” Reay said.

“In many markets, the new supply is simply making up for the lack of new construction from 2009 to 2013,” he said, adding that he expects the hotel market to be strong until at least late 2018 or early 2019.

With all the construction under way, Reay said existing hotel owners should keep their properties up to date if they want to keep up with the newer developments.

Reay said if revenue-per-available-room growth slows down or flattens, and new supply keeps getting added, even more pressure will be put on older hotels.

“It is important for lenders and developers to carefully monitor the new hotel supply pipeline prior to jumping in to the market,” he said.

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