Developer angling to build new five-star hotel in Beverly Hills. (Up Front).

Beverly Hills has not had a ritzy hotel built in the area for 10 years, but city officials are banking on a $200 million project to bring a new five-star facility to town.

The Athens Group, a Phoenix-based developer of luxury hotels, is negotiating with Lexington Commercial Holdings to buy several buildings on Canon and Beverly Drives just north of Wilshire Boulevard and develop a 228-room hotel that would be topped with two stories of luxury condominiums encompassing 72,000 square feet. It would be located one block from Wolfgang Puck's Spago restaurant.

"In terms of prestigious locations, there is no doubt that Beverly Hills would be the place," said Alan X. Reay, president of Atlas Hospitality Group, a hotel brokerage firm in Orange County. "But if you look at the market today, the demand for high-end hotels has experienced a serious drop-off."

The Beverly Hills City Council on Nov. 18 approved entering into a memorandum of understanding with The Athens Group, which now has to conduct an environmental impact report to study the project's effect on local traffic and the environment. After the EIR is completed and public hearings are held, the council will vote on the project, most likely not until next fall.

The current investment climate for hotels remains abysmal because of curtailed international and corporate travel still stemming from Sept. 11.

Steven Crowe, who already has entitlements to build a 133-room luxury boutique hotel on Wilshire Boulevard and Maple Drive, has spent the last year searching for financing for the $43 million project.

The Athens Group hotel, to be called the Montage Hotel Beverly Hills, will be owned by Beverly Hills Luxury Hotel LLC, a partnership between The Athens Group, Montage Hotels & Resorts in Laguna Beach, and several private investors. Montage Hotels & Resorts will operate the hotel.

Hill Glazier Architects, a Palo-Alto firm known for designing prestigious resorts, has been retained as architect.

Montage Hotel & Resorts has deep-pocketed investors bent on developing five-star hotels and resorts. The company's main investor is eBay Inc. founder Pierre Omidyar, Reay said.

Demand questioned

But some wonder whether Beverly Hills really needs another five-star inn. The city already has such posh hotels as the Peninsula Hotel, the Beverly Hills Hotel and the Regent Beverly Wilshire Hotel.

"If you had asked me two or three years ago whether there was room for another five-star hotel in Beverly Hills, I would have said absolutely. But now I don't know," said Peter O'Colmain, general manager of the Regent Beverly Wilshire Hotel. "I'm glad they're not opening their doors today."

Occupancy levels for Beverly Hills hotels in October were at 64.3 percent, above the dismal 45 percent registered in the same month last year right after Sept. 11, according to PKF Consulting, which tracks the hotel market. But this year's Beverly Hills figure is one of the lowest of any areas in the county surveyed. Santa Monica, which also has a concentration of luxury hotels, had a 72.5 percent occupancy rate.

As part of the project, the city will kick in $45 million to $55 million to develop a public plaza next to the hotel. The plaza would have space for outdoor dining, said David Lightner, deputy city manager for Beverly Hills.

Plans call for an as yet undetermined number and type of retail stores to be constructed around the plaza.

The Athens Group wants to buy and demolish the Israeli Discount Bank, the Canon Theatre and the old Gucci building in the 200 block of North Canon Drive to make room for the project. The company also wants to purchase a retail building that used to house Rudnick's in the 200 block of North Beverly Drive. All the buildings are owned by Lexington Commercial Holdings, billionaire Louis Gonda's real estate investment firm.

In addition, space where six city-owned lots at 222 N. Beverly Drive now sit would be used for the project that will include a city-owned subterranean parking garage for 1,000 cars. The garage will be opened to the public.

The developers will invest approximately $150 million to build the hotel and condominiums. The city will pay for the underground parking structure, said Marguarite Clark, a Montage hotel spokeswoman.

Past objections

Traffic congestion is one of the roadblocks that has hampered past projects slated for this area.

Two years ago, Lexington Commercial Holdings and specialty retail developer Madison Marquette dropped plans to build a 295,000-square-foot retail-movie theater complex to be called Beverly Lane. The retail portion was to include toy retailer FAQ Schwarz as well as a bookstore, bakery and restaurant.

But there were concerns about the marketability for this kind of project. In addition, nearby residents weren't thrilled about having a movie theater nearby because of the constant traffic generated by movie theaters.

Several years before that, Bloomingdale's proposed building a flagship store in that area, but the department store chain scrapped the idea after it bought the Broadway department store chain and opened stores in vacated Broadway buildings in Century City and Sherman Oaks.

Beverly Hills has not had a luxury hotel since the Peninsula Hotel opened in 1992.

The hotel probably would not open its doors for at least two or three years, at which time the economy might have improved enough that high-rolling tourists will be traveling again, its developers said.