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In the Shadow of San Diego
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| A fifth major hotel near San Diego's convention center will give the city to the south a further edge over Los Angeles. Photo courtesy of the Centre City. |
As the City to the South Moves Ahead on Its Fifth Convention Center Hotel, L.A. Still Struggles for Number One
by Kathryn Maese
Downtown Los Angeles boasts a massive employee base, an increasing residential population, vibrant creative minds in the fashion and other industries, and some of the world's greatest cultural attractions. But when it comes to the convention industry, a smaller city to the south has Downtown green with envy.
San Diego officials are nearing a deal to build the city's fifth major convention hotel, a 1,200-room Hilton that will complement the city's booming waterfront convention center and enable planners to book ever-larger events simultaneously.
Financing is nearly secure for the $348 million tower. As a testament to the profit potential, the project is being entirely privately funded.
About 150 miles to the north, Los Angeles is still struggling to cobble together a deal for its first Convention Center headquarters hotel. It's a reality that has been further complicated by last month's departure of the project's major financial backer.
With many major metropolitan cities pressing ahead on expansions and new facilities, why is L.A. behind the curve when it comes to building a mega-hotel to accommodate more convention business?
"It's a head scratcher," said Jack Kyser, chief economist at the Los Angeles Economic Development Corp. "Why can't we muster the will to build one, and yet in San Diego they are going all out? When you look at the occupancy rate in San Diego hotels, room rates are scoring good year-over-year increases, this despite the disarray in city finances causing them to cut back on Convention Center spending."
Los Angeles' planned hotel, a 1,100-room facility to be operated by the Hilton Hotel Corp., is envisioned as the anchor of a $1.5 billion sports and entertainment district called L.A. Live. Developer Anschutz Entertainment Group (AEG) brought on Wolff Urban Management to build the 55-story hotel. In turn, Wolff secured Apollo Real Estate Advisors earlier this year to help finance the $500 million venture. Late last month, however, the Century City-based Apollo backed out, citing ballooning costs.
While not quite putting the project back to square one - city and business leaders believe they can secure another investor - it was a cruel reminder of the difficulties of such a deal. Downtown leaders have cited the need for a headquarters hotel for more than a decade.
Trying to Grow
Los Angeles is at least a decade behind San Diego's investment in its convention business and in its downtown revitalization, said Bruce Baltin, senior vice president for PKF Consulting, which tracks the hospitality industry.
"L.A. today is where San Diego was at its first Convention Center hotel," Baltin said. "It didn't have the market strength to proceed back then. But L.A. is getting stronger as a market."
Much of that strength is coming from the housing market, which has reached dizzying heights with most entry-level condominiums fetching in excess of $600 a square foot. That housing has been coupled with cultural developments, notably the civic-backed redevelopment of Grand Avenue into an arts and retail hub, and the lauded L.A. Live project.
The latter was a prime factor in getting the city to back the Convention Center hotel deal with a $100 million-plus concessions package. Without a major hotel, Los Angeles has lagged behind its competitors in a big way. LA Inc, the city's convention and visitors bureau, said it booked only two major conventions in the last fiscal year. San Diego notched 55.
What's more, the city to the south contracted 71 events representing 914,717 hotel room nights for future years - a 34% increase over the 685,000 room nights that were booked in 2004. This represents $1.5 billion in future economic impact and $32 million in tax revenue for the city, according to the San Diego Convention & Visitors Bureau.
When the San Diego hotel breaks ground in early February, it will allow planners to boast that the downtown area will have approximately 6,500 rooms within a mile of the convention center. The two largest facilities are the 1,625-room Manchester Grand Hyatt San Diego and the 1,345-room San Diego Marriott Hotel & Marina.
By contrast, Los Angeles has a much smaller supply of rooms in about 14 Downtown hotels - only 4,000 - and most are several blocks from the Convention Center. The owner of largest, the 1,354-room Westin Bonaventure, recently dropped a lawsuit trying to block the creation of a new headquarters hotel. That establishment is also an ample walk from the Convention Center.
Stiff Competition
San Diego currently turns away about 10 large conventions a year because it lacks rooms to accommodate visitors, according to the city's convention and visitors bureau. Once the new hotel comes online, it will mean added pressure for an already struggling Los Angeles market. Stiff competition for big events also comes from Anaheim, Las Vegas and San Francisco.
"They are all out there competing for the same big business shows," Kyser said. "San Francisco has the charm, restaurants and retail. Anaheim has hotels and the Mouse. San Diego has its hotels, Gaslamp District and it's on the bay. Literally we have to try harder. We have to get the hotel up, get L.A. Live running and have other amenities to make it competitive."
As San Diego officials tell it, Los Angeles today is a minor threat when it comes to event business. When the new hotel opens, it will have an even bigger weapon in its arsenal - a labor union agreement that will allow hotel workers to organize.
"This particular hotel is a major step forward for us," said Stephen Cushman, a Port District commissioner of the Unified Port of San Diego. "It's our first major union facility that will open up a tremendous number of conventions we've never been able to bid on before. There are over 50,000 delegates on an annual basis [seeking these hotels.]"
Cushman noted that despite L.A.'s plans to construct a new hotel, the city still suffers from geography and sprawl problems. Although Downtown has a vibrant business core, he called the Convention Center's location a "challenge," especially when compared to other activity-rich cities where everything is in walking distance and the airport is a short ride away.
While spin is an expected part of the business, LA Inc Vice President Michael Collins disagrees with Cushman's assessment. He said there is a strong case to be made for Los Angeles, one that will become nearly bulletproof once the $1.5 billion sports and entertainment district opens its first phase in 2007 - the $85 million Nokia Theatre that will seat 7,100 and host approximately 110 events annually.
The glitzy project will unfold along Figueroa and 11th streets in the parking lot north of Staples Center. The district will include nearly a dozen restaurants, a 15-screen Regal Theater, an ESPN Zone, clubs and copious retail. In effect, L.A. Live will create an equivalent to San Diego's Gaslamp District, which has been a major engine in jump-starting that area's center city.
"The single biggest inhibitor to the construction of the [Downtown Los Angeles] hotel was the fact that there wasn't anything around it," Collins said. "If you came to me in 1998 and said you want to build a hotel there, there certainly was a need. There were 34 conventions at that point and more demand than we could house.
"But until it could be built in the context of something like L.A. Live it would fail," he continued. "People don't like to have meetings in a hotel surrounded by parking lots. AEG has created a context."
News of the L.A. Live groundbreaking and the city's involvement has begun to spur sluggish booking activity for the L.A. Convention Center, Collins said. By the end of this fiscal year the city is poised to book more than 20 major events - already it has secured 15.
Talk of a new headquarters hotel has also prompted a flurry of activity on the part of local hotel owners to refurbish their facilities. The most notable is the Wilshire Grand Hotel, which will undertake a $40 million renovation of its 900-room facility in time for the Hilton's projected opening in 2009.
There has also been interest on the part of boutique hoteliers to capitalize on the impending changes and anticipated visitor interest. The Chetrit Group and New York-based WSA Management plan to turn the 1914 Embassy Hotel and Theater at 851 S. Grand Ave. into the 175-room Gansevoort West, a local version of a trendy establishment in Manhattan's Meatpacking District. The project has been estimated at $20 million.
Despite the momentum, the hotel deal is still without an equity partner and there is only a relatively small pool of investors that would be willing and able to jump into such a complex scenario, industry experts say. Indeed, San Diego's current hotel project had multiple equity sources back out before the project finally came together.
"All these hotel deals are very complicated and very hard to pull together and they take a lot of consensus," PKF Consulting's Baltin said. "Everyone has to be on the same page at the same time to get it done. At the same time the capital markets needs to come together. In San Diego, they have the advantage that the landowner down there is the Port of San Diego, which is quasi-public, to facilitate the process."
Contact Kathryn Maese at kathryn@downtownnews.com.
page 1, 12/12/2005
© Los Angeles Downtown News. Reprinting items retrieved from the archives are for personal use only. They may not be reproduced or retransmitted without permission of the Los Angeles Downtown News. If you would like to redistribute anything from the Los Angeles Downtown News Archives, please call our permissions department at (213) 481-1448.
San Diego officials are nearing a deal to build the city's fifth major convention hotel, a 1,200-room Hilton that will complement the city's booming waterfront convention center and enable planners to book ever-larger events simultaneously.
Financing is nearly secure for the $348 million tower. As a testament to the profit potential, the project is being entirely privately funded.
About 150 miles to the north, Los Angeles is still struggling to cobble together a deal for its first Convention Center headquarters hotel. It's a reality that has been further complicated by last month's departure of the project's major financial backer.
With many major metropolitan cities pressing ahead on expansions and new facilities, why is L.A. behind the curve when it comes to building a mega-hotel to accommodate more convention business?
"It's a head scratcher," said Jack Kyser, chief economist at the Los Angeles Economic Development Corp. "Why can't we muster the will to build one, and yet in San Diego they are going all out? When you look at the occupancy rate in San Diego hotels, room rates are scoring good year-over-year increases, this despite the disarray in city finances causing them to cut back on Convention Center spending."
Los Angeles' planned hotel, a 1,100-room facility to be operated by the Hilton Hotel Corp., is envisioned as the anchor of a $1.5 billion sports and entertainment district called L.A. Live. Developer Anschutz Entertainment Group (AEG) brought on Wolff Urban Management to build the 55-story hotel. In turn, Wolff secured Apollo Real Estate Advisors earlier this year to help finance the $500 million venture. Late last month, however, the Century City-based Apollo backed out, citing ballooning costs.
While not quite putting the project back to square one - city and business leaders believe they can secure another investor - it was a cruel reminder of the difficulties of such a deal. Downtown leaders have cited the need for a headquarters hotel for more than a decade.
Los Angeles is at least a decade behind San Diego's investment in its convention business and in its downtown revitalization, said Bruce Baltin, senior vice president for PKF Consulting, which tracks the hospitality industry.
"L.A. today is where San Diego was at its first Convention Center hotel," Baltin said. "It didn't have the market strength to proceed back then. But L.A. is getting stronger as a market."
Much of that strength is coming from the housing market, which has reached dizzying heights with most entry-level condominiums fetching in excess of $600 a square foot. That housing has been coupled with cultural developments, notably the civic-backed redevelopment of Grand Avenue into an arts and retail hub, and the lauded L.A. Live project.
The latter was a prime factor in getting the city to back the Convention Center hotel deal with a $100 million-plus concessions package. Without a major hotel, Los Angeles has lagged behind its competitors in a big way. LA Inc, the city's convention and visitors bureau, said it booked only two major conventions in the last fiscal year. San Diego notched 55.
What's more, the city to the south contracted 71 events representing 914,717 hotel room nights for future years - a 34% increase over the 685,000 room nights that were booked in 2004. This represents $1.5 billion in future economic impact and $32 million in tax revenue for the city, according to the San Diego Convention & Visitors Bureau.
When the San Diego hotel breaks ground in early February, it will allow planners to boast that the downtown area will have approximately 6,500 rooms within a mile of the convention center. The two largest facilities are the 1,625-room Manchester Grand Hyatt San Diego and the 1,345-room San Diego Marriott Hotel & Marina.
By contrast, Los Angeles has a much smaller supply of rooms in about 14 Downtown hotels - only 4,000 - and most are several blocks from the Convention Center. The owner of largest, the 1,354-room Westin Bonaventure, recently dropped a lawsuit trying to block the creation of a new headquarters hotel. That establishment is also an ample walk from the Convention Center.
San Diego currently turns away about 10 large conventions a year because it lacks rooms to accommodate visitors, according to the city's convention and visitors bureau. Once the new hotel comes online, it will mean added pressure for an already struggling Los Angeles market. Stiff competition for big events also comes from Anaheim, Las Vegas and San Francisco.
"They are all out there competing for the same big business shows," Kyser said. "San Francisco has the charm, restaurants and retail. Anaheim has hotels and the Mouse. San Diego has its hotels, Gaslamp District and it's on the bay. Literally we have to try harder. We have to get the hotel up, get L.A. Live running and have other amenities to make it competitive."
As San Diego officials tell it, Los Angeles today is a minor threat when it comes to event business. When the new hotel opens, it will have an even bigger weapon in its arsenal - a labor union agreement that will allow hotel workers to organize.
"This particular hotel is a major step forward for us," said Stephen Cushman, a Port District commissioner of the Unified Port of San Diego. "It's our first major union facility that will open up a tremendous number of conventions we've never been able to bid on before. There are over 50,000 delegates on an annual basis [seeking these hotels.]"
Cushman noted that despite L.A.'s plans to construct a new hotel, the city still suffers from geography and sprawl problems. Although Downtown has a vibrant business core, he called the Convention Center's location a "challenge," especially when compared to other activity-rich cities where everything is in walking distance and the airport is a short ride away.
While spin is an expected part of the business, LA Inc Vice President Michael Collins disagrees with Cushman's assessment. He said there is a strong case to be made for Los Angeles, one that will become nearly bulletproof once the $1.5 billion sports and entertainment district opens its first phase in 2007 - the $85 million Nokia Theatre that will seat 7,100 and host approximately 110 events annually.
The glitzy project will unfold along Figueroa and 11th streets in the parking lot north of Staples Center. The district will include nearly a dozen restaurants, a 15-screen Regal Theater, an ESPN Zone, clubs and copious retail. In effect, L.A. Live will create an equivalent to San Diego's Gaslamp District, which has been a major engine in jump-starting that area's center city.
"The single biggest inhibitor to the construction of the [Downtown Los Angeles] hotel was the fact that there wasn't anything around it," Collins said. "If you came to me in 1998 and said you want to build a hotel there, there certainly was a need. There were 34 conventions at that point and more demand than we could house.
"But until it could be built in the context of something like L.A. Live it would fail," he continued. "People don't like to have meetings in a hotel surrounded by parking lots. AEG has created a context."
News of the L.A. Live groundbreaking and the city's involvement has begun to spur sluggish booking activity for the L.A. Convention Center, Collins said. By the end of this fiscal year the city is poised to book more than 20 major events - already it has secured 15.
Talk of a new headquarters hotel has also prompted a flurry of activity on the part of local hotel owners to refurbish their facilities. The most notable is the Wilshire Grand Hotel, which will undertake a $40 million renovation of its 900-room facility in time for the Hilton's projected opening in 2009.
There has also been interest on the part of boutique hoteliers to capitalize on the impending changes and anticipated visitor interest. The Chetrit Group and New York-based WSA Management plan to turn the 1914 Embassy Hotel and Theater at 851 S. Grand Ave. into the 175-room Gansevoort West, a local version of a trendy establishment in Manhattan's Meatpacking District. The project has been estimated at $20 million.
Despite the momentum, the hotel deal is still without an equity partner and there is only a relatively small pool of investors that would be willing and able to jump into such a complex scenario, industry experts say. Indeed, San Diego's current hotel project had multiple equity sources back out before the project finally came together.
"All these hotel deals are very complicated and very hard to pull together and they take a lot of consensus," PKF Consulting's Baltin said. "Everyone has to be on the same page at the same time to get it done. At the same time the capital markets needs to come together. In San Diego, they have the advantage that the landowner down there is the Port of San Diego, which is quasi-public, to facilitate the process."
Contact Kathryn Maese at kathryn@downtownnews.com.
page 1, 12/12/2005
© Los Angeles Downtown News. Reprinting items retrieved from the archives are for personal use only. They may not be reproduced or retransmitted without permission of the Los Angeles Downtown News. If you would like to redistribute anything from the Los Angeles Downtown News Archives, please call our permissions department at (213) 481-1448.
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