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Hospitality’s Hot Streak

Coming Soon: 429 rooms at Sleep Inn in Palmdale, 241 suites at Sand Canyon Resort Santa Clarita and more than 1,500 hotel keys in the city of Burbank.

The San Fernando, Santa Clarita and Antelope Valleys — as well as other parts of the North Los Angeles market such as the Tri-Cities — saw roughly 50 hotels in development and under construction in 2020, even though coronavirus regulations all but killed business in the hospitality sector.   According to data from Atlas Hospitality Group in Irvine, some 1,245 hotels are currently being built in California, totaling 23,451 rooms. That signifies a 3.7 percent rise over 2019.  Los Angeles County had the most rooms under construction with 7,148, beating second-ranked Santa Clara County by a wide margin at 2,428 rooms.

A sizable part of that encouraging narrative is unfolding in the North L.A. submarkets. In total, 49 hotels are on the way in the San Fernando and Santa Clarita Valleys, and more than a dozen properties each have 200 rooms or more (see map). Development is concentrated at opposite ends of the Valley in Warner Center and the Tri-Cities markets of Glendale and Burbank.In the North L.A. region, three hotels opened last year: Residence Inn Glendale, a 147-unit business at 145 N. Louise St. in Glendale; The Glenmark, another 85 units in Glendale located at 1100-1102 N. Brand Blvd.; and Hotel Lexen, a property at 24219 Railroad Ave. in Newhall.     Alan Reay, president of Atlas Hospitality Group, chalked up the robust numbers to pre-pandemic planning.

“They had already started construction prior to and just after the start of the pandemic, before developers and lenders really saw how devastating the effects of COVID-19 were going to be,” Reay told the Business Journal.

JLL Executive Vice President Tony Muscio, head of the firm’s hotel and hospitality group at the company’s L.A. office, noted that timing is everything in development.

“If you have your financing and equity and you’re breaking ground and you’re building during the downturn and opening by when the market opens up, that’s to your benefit,” Muscio said. He added that will be a dip in new hotel pre-planning in 2021.But for now, there are plenty of projects on the way, including some high-profile hospitality developments (see map). The District at Warner Center, to take the place of the long-standing, 336,000-square-foot Fry’s Electronics at 6100 N. Canoga Ave. in Woodland Hills, will have 204 rooms. Houston-based Kaplan Cos.

paid $48 million for the 8-acre retail site in early 2020 with the intention of creating a mixed-use complex with a hotel. Down the street, retail conglomerate Unibail-Rodamco-Westfield will include two hotels totaling 572 suites as part of its $1.5 billion mixed-use Promenade 2035 project, which will also include retail, an office tower and a sports and entertainment stadium. Meanwhile in the Tri-Cities, Doran Hotels, owned by Canadian hotel corporation Onni Group, will raise two towers totaling nearly 860 rooms at 611 N. Brand Blvd. in Glendale. Burbank has more than 1,000 rooms under construction.

All of this despite that fact that hotel vacancy skyrocketed in 2020, according to local real estate brokers.

“It’s been a relatively devastating year for the industry as a whole,” Rod Apodaca, senior vice president of CBRE Group’s hotel capital markets division, told the Business Journal.

Still, there were glimpses of hope for the sector.

“Transactions increased nationwide,” said JLL’s Muscio.While there were no major hotel sales in North L.A., Muscio noted that The Renaissance LAX,which sold for $92.5 million in December, and Viceroy L’Ermitage Beverly Hills – $100 million in September – changed hands in 2020.Despite an overall rise in vacancies nationwide in 2020, hotels enjoyed robust business last summer in California’s Central Coast and San Bernardino — which includes vacation destinations such as Big Bear and Lake Arrowhead, becoming the leading hospitality hot spot in the country, according to Apodaca.  Conversely, with Six Flags Magic Mountain closed, Santa Clarita Valley took a hit in the hotel sector while the stop-and-go entertainment industry somewhat sustained lackluster hospitality business in Burbank, near the Universal Studios Hollywood theme park.  Apodaca added that mid-tier and extended stay hotels, which include such brands as Home2Suites, Hilton Garden Inn and Residence Inn, were best equipped to attract business during the pandemic.

Muscio said that the return of hospitality will begin with transient leisure — localized intrastate travel — followed by increases in group demand and corporate transient business.

“We can kind of look at the Great Recession and other demand shocks,” Muscio said. “Now that the vaccine is rolling out and if we’re getting herd immunity toward the end of the year, the industry (should snap back).”With vaccine distribution rolling out, Apodaca expects the ailing hotel industry to improve in 2022 and 2023 as the entertainment industry, conventions and business travel return to normal.  And Muscio ultimately believes that any dip in 2021 will long-term be a blip for the industry as pent-up demand for hospitality should be formidable post-virus. He noted how North L.A. submarkets saw healthy occupancy pre-COVID-19: East San Fernando Valley and Santa Clarita Valley each had occupancy levels in the 80 percent range.However, the hotel construction trend may collapse this year as the impact of the coronavirus crisis on the hotel industry is reflected in data gathered for 2021, according to Reay at Atlas Hospitality.

“Going forward, we anticipate a sharp decline in new hotel construction, once the projects under construction are completed,” he said.

 

Michael Aushenker
Michael Aushenker
A graduate of Cornell University, Michael covers commercial real estate for the San Fernando Valley Business Journal. Prior to the Business Journal, Michael covered the community and entertainment beats as a staff writer for various newspapers, including the Jewish Journal of Greater Los Angeles, The Palisadian-Post, The Argonaut and Acorn Newspapers. He has also freelanced for the Santa Barbara Independent, VC Reporter, Malibu Times and Los Feliz Ledger.
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