Santa Cruz Sentinel
08/27/18

Santa Cruz Hotels See Record Room Rates as Nearby Cities Ask for Higher Hotel Room Taxes
By Jondi Gumz

http://www.santacruzsentinel.com/article/NE/20180827/NEWS/180829727

Hotels and motels in the city are booming, with record year-to-date occupancy of 72 percent and average room rates reaching $200 for June and July, a first, according to STR, a data and analytics company that tracks the industry.

Last year, hotels countywide tracked by STR tallied nearly $152 million in revenue, a steady upward trajectory from $107.7 million five years ago, and this year’s revenue is likely to increase.

Alan Reay of Atlas Hospitality, which tracks hotel development and sales, reports that “2017 was a record-breaking year for California hotel development, and as we predicted, 2018 is on pace to eclipse it.”

Despite the demand for overnight stays, it’s taking longer than expected to complete five new hotels planned or under construction.

• Framing stands silently at the Coastview Hotel, 301 Beach St. in Beach Flats, where work has stopped. A neighbor said the city halted the project as lacking proper permits. Coastview owner Prakash Babu envisioned a white three-story Spanish colonial-style hotel with 24 balconies and a rooftop deck with a firepit overlooking the beach; he could not be reached by the Sentinel.

• At 2424 Mission St. on the Santa Cruz Westside, the 32-room Sunset Inn has been demolished and the site graded for owners Praful Patel and Ranjan Patel. City planner Mike Ferry reports a building permit for three-story 60-room Hampton Court Inn was issued July 30.

• At 313-321-325 Riverside Ave. in Beach Flats, site of what will be a four-story 151-room Courtyard Marriott, workers start at 6 a.m., too early for Sam Sharma, manager at the Salt Air Lodge next door. Lotus Management of San Jose began construction two years ago with southern California builder Angeles Contractor. On a busy day, there can be 30 to 40 workers on site. Ryan Park, the fifth project engineer on the site, said Monday he expects the job to be complete at the end of next year.

• In Scotts Valley, Scotts Valley Hotel LP, a Lotus Management venture, bought 5030 Scotts Valley Drive and the 125-room hotel under construction from Merced Hospitality for $22.7 million in February. The hotel, which had been called the Lexington, is being completed as the Four Points Sheraton. In mid-July, Lotus Management announced 5030 Restaurant & Lounge would open soon serving California cuisine and local craft beer. According to Scotts Valley Mayor Jim Reed, the hotel may open in September.

• In Watsonville, local businessman Sonny Tut and his two sons have a $23 construction loan from Hall Structured Finance of Dallas to build a 112-room Hampton Inn & Townhome project. Hotel Management, a trade publication, reported in January the hotel is anticipated to open in summer 2019, and the 48-unit Blackbird homes due to be completed by October.

Hotel stays in Santa Cruz typically peak in July, and average room rate was $217, up from $200 in June and up from $168 five years ago, according to STR.

This year, STR reported July occupancy hit 86.7 percent, up from 85.2 percent a year ago and up from 81.7 percent five years ago.

Countywide, hotel metrics in July were not far behind the city, with 70.7 percent occupancy and room rates averaging $214.

Hotel building is boosting the number of construction jobs in Santa Cruz County — 5,100 in June when unemployment was 4.5 percent.

Nothing has dampened the pace of hotel development, not even construction costs going up 20-25 percent, according to Reay, who noted hotel values are still climbing which helps offset higher construction costs.

The number of hotel sales dropped statewide by 35 percent in the first half of 2018, and there were no sales in Santa Cruz County but the median price per room rose 11 percent, with the average for eight San Francisco sales $402,779 per room.

Leaders in three local cities are asking voters in November to raise the hotel room tax, formally known as the “transient occupancy tax,” to boost city coffers.

Capitola wants to raise that tax from 10 percent to 12 percent, generating $310,000 a year, with funds to be earmarked for youth and early childhood programs, for local business groups for marketing and community improvements and for core city functions. A two-thirds yes vote is required for passage.

Scotts Valley wants to raise the hotel room tax from 10 percent to 11 percent, generating $230,000 per year assuming two new hotels open. The money would to reduce the general fund projected deficit at $1.2 million and pay for services such as police, recreation, park maintenance and street repairs. A majority yes vote is required for passage.

Watsonville wants to raise the hotel room tax from 11 percent to 12 percent, generating $130,000 a year, with the money going into the general fund to pay for city operations such as parks and police. A majority yes vote is required for passage.

Hotel room taxes are paid by visitors and tend to arouse little opposition.

In Capitola, Scotts Valley and Watsonville, no one filed a ballot argument against raising hotel room taxes.