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Tuesday, Sep 26, 2023

Rooms On the Way: Smaller Projects Gain Favor

Increased construction costs and high interest rates are taking a toll on hotel construction in Los Angeles and the rest of the state.

Los Angeles County still leads California in building new lodging, with 21 hotels and 2,329 rooms under construction the first half of the year, according to a mid-year report from Irvine-based Atlas Hospitality Group.

However, the number of rooms under construction in the county is down by 42% compared to last year at the same time. In addition, the number of hotels under construction is down 28% compared to the same time last year, according to the Atlas report.

“Smaller projects with fewer rooms are what are in the pipeline to open within the next year,” said Robert Feist, vice president of Atlas Hospitality. “It’s clearly market driven as far as financing, interest rates and cost to build.”

Feist noted that pre-pandemic, the number of projects and rooms under construction were almost double the current rate during the stronger market in 2018 and into 2019, when there was more available financing and reasonable construction costs. Then Covid-19 slowed or stopped most hotel construction in 2020.

“All of those projects that were in the pipeline or under construction pre-Covid that were coming out of the ground opened up in 2021,” said Feist. “We saw a very strong market in 2021 as far as our development was concerned. Since then, because development projects take such a long time, the pipeline shrank to a fraction of where it was prior.”

Due to the higher interest rates and lack of construction financing, Atlas Hospitality is forecasting the downturn in new hotel construction will continue for at least the next 18 to 24 months.

“It’s sub-150-unit hotels (currently underway), and a lot of them look to be more in the limited-service space. Those are cheaper to construct,” said James Stockdale, managing director at JLL Hotels & Hospitality Group. “You’re talking about a wood-frame building as opposed to reinforced concrete or steel that’s going to be more expensive. It’s going to require less labor to put up a limited-service hotel versus a full-service hotel. It is just simply because they’re cheaper to build. They’re easier to build.”


It’s not just development that is lagging behind pre-Covid levels. Individual sales of L.A. hotels were down almost 53% in the first half of this year compared to the same time last year. The median price per room declined by 13% in the same time period.

By comparison, Southern California sales were down 59%.

All California counties experienced a decline with San Bernardino County down the most with a 95% decline in sales, followed by Sacramento County, which was down 86%, according to Atlas.

The Atlas report noted that the only other year that had seen such a significant decline in individual hotel sales was in the first half of 2009, when sales were down 51%.

More on the way

Despite the declines, business is still moving forward with several projects. Six hotels debuted in Los Angeles County in the first half of the year. The largest project to open during so far this year was the Moxy Downtown Los Angeles and AC Hotel Downtown Los Angeles, a double-branded hotel with 380 rooms. The Jordan Hotel in San Gabriel is the largest hotel project in the county under construction; it has 225 rooms and is expected to open in July of next year.

“As the rate environment gets better, these construction projects will pencil more and that will potentially help fuel additional demand,” Stockdale said. “But for existing hotel owners, you know, fewer hotels in the pipeline is a good thing.”

But large-hotel construction will likely be rare in the coming months, according to Feist. 

“The bigger hotels are more difficult to work out as far as feasibility, cost and financing,” said Feist. “Smaller projects are easier to finance, less expensive. That makes it easier for those to get out of the ground. We expect that for the near term.”

Holiday Inn Express & Suites Glendale Downtown

Address: 1001 East Colorado St., Glendale

Developer: Sinanian Development Inc.

Management: InterMountain Management

Completion Status: Opened in February

The Holiday Inn Express & Suites Glendale Downtown has 134 rooms. It is located a few blocks from the Glendale Galleria and The Americana at Brand. Management company InterMountain has built or renovated more than 200 properties nationwide and currently has more than 20 hotels in various stages of development and repositioning.

Cambria Hotels Burbank

Rendering: Cambria Hotels Burbank is scheduled to open early next year.

Address: 3525 N. San Fernando Blvd., Burbank

Architect: Architects Orange

Developer: Collaboration between Choice Hotels and HighSide Development

Completion Status: Expected early next year

This project, with six floors and 150 rooms, has a design inspired by the film industry. The property will have a first-floor patio and a sixth-floor amenity deck with views of the Verdugo Mountains. Choice Hotels, which holds the Cambria brand within its portfolio, currently franchises more than 7,000 hotels representing nearly 570,000 rooms in more than 40 countries and territories.

Hampton Inn & Suites Porter Ranch

Address: 20150 W Rinaldi St., Porter Ranch

Architect: DesignCell Architecture

Developer: Tharaldson Hospitality Development

Completion Status: Expected by the end of the year

The 60,900-square-foot, four-story project will have 100 rooms. The property, located near the 118 freeway, is surrounded by 335,000 square feet of restaurants, retail, movie theaters, medical offices and other types of businesses and services, including The Vineyards shopping center, a mixed-used retail, multifamily living, office, hospitality and lifestyle center.



Hannah Madans Welk
Hannah Madans Welk
Hannah Madans Welk is a managing editor at the Los Angeles Business Journal and the San Fernando Valley Business Journal. She previously covered real estate for the Los Angeles Business Journal. She has done work with publications including The Orange County Register, The Real Deal and doityourself.com.

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