L.A.'s hotel industry: still room to grow.

L.A.'s hotel industry: Still room to grow

The Los Angeles hotel industry was poised for a boom in the summer of 1984. The Olympics were about to come to town, and all the pundits and professional observers predicted that innkeepers would be one of the biggest winners when foreign visitors decided to hang around and take in the sights.

It never happened.

Then this year, the local hotel industry poised for another boomlet as the travel industry predicted Americans would flock to U.S. cities to avoid the terrorism of foreign airports.

It never happened.

"The Olympics turned out to be disappointing both before and after compared to what we expected," says Al Thomas, senior vice president and director of western operations for Sheraton Corp. "This summer was the same in the sense that business didn't improve as much as everybody said it would."

Los Angeles did feel minor ripples of increased hotel business before and after the Olympics, and terrorism did keep some people home this summer, Thomas says, but neither summer season matched up to the predicted boom.

Despite these two disappointments and a substantial oversupply of rooms in some submarkets, particularly the Los Angeles Airport area, Thomas and others in the local industry say Los Angeles remains a growth area for hotels. But they predict a slowdown in growth generally in the industry because of the full supply of hotel rooms and tax law changes that reduce or eliminate the tax benefits of hotel projects

One big reason they cite is the diversity of submarkets within Los Angeles. A report on trends in the local hotel industry by Pannell Kerr Forster, for example, lists 14 submarkets within the Los Angeles market.

An international accounting firm, Pannell Kerr Forster specializes in the hospitality industry, maintaining monthly and yearly statistics on various aspects of the industry and issuing an annual forecast for the market.

According to the company's latest figures, hotel occupancy rates for August ranged from 51 percent in the San Gabriel Valley submarket to 94 percent in Santa Monica. For the year to date, overall occupancy in the Los Angeles area has increased from 70 to 71 percent compared to 1985.

Another accounting firm that follows the industry closely, Laventhol & Horwath, sees Los Angeles as a healthy market despite some declines in occupancy in some submarkets.

"The hotel industry in Los Angeles is very healthy," says Britton Colbert, the parter responsible for the hotel and restaurant industry at the local office of Laventhol & Horwath. "While occupancies in some market areas have declined, there is a real increase in demand and that's very healthy."

Colbert explains that occupancy levels can decline at the same time demand is increasing if large new hotels open within a market.

For example, he says, demand increased in the Ontario area during 1985, but the supply of rooms increased dramatically as three new hotels totaling about 1,000 rooms opened in the region.

The region continues to attract investment from companies already in the market. Hilton Corp. and The Biltmore, for example, have spent huge sums renovating their local properties. And new players continue to enter the market--like Radisson Hotel Corp., which opened recently in Manhattan Beach, and Four Seasons Hotels, which is building in West Los Angeles.

But Los Angeles isn't likely to see huge building surges involving massive new hotels, industry insiders say.

"Los Angeles will remain one of the more active markets because it is so spread out, but I don't see anybody coming in and building a 1,500-room hotel here," Thomas says.

Jim Reed, vice president of Marriott Hotels and Resorts for Southern California, Hawaii and Asia, says the U.S. hotel industry in general "is probably more overbuilt than at any time in the history of innkeeping."

Reed says Los Angeles County "as a whole is probably not overbuilt. The supply is probably equal to demand. Certain parts of Orange County are overbuilt, but what a great place to be overbuilt. It's painful at the present time, but the economy is very dynamic in Orange County and it's not going to be a problem in the long term."

New hotels have risen in Los Angeles as part of "a tremendous amount of building in the last eight to 10 years in the hotel industry" nationwide, Reed says. "Developers want hotels as part of multi-use projects because they (hotels) provide great visibility and identification."

But the hotel industry is cyclical, he points out, and a market that is oversupplied can turn to undersupplied in just a few years.

One of the submarkets most often mentioned by local hotel executives is the airport area. Thomas says the number of rooms in the market has increased by 45 percent in the past five years, including his company's Sheraton La Reina.

John Sheldon, regional director of marketing for the western region of Hilton Corp., says he prefers to describe the airport market as "more competitive" rather than "overbuilt."

"So far, our business hasn't tapered off any there, but we've had to be more inventive and more aggressive in our sales and marketing," Sheldon says. Reed says the whole L.A. market has turned into "a hardball marketplace" where "sales and marketing is what really makes the difference."

Marketing has taken on increased importance in the industry, according to Colbert, because the hotel business has evolved to include a whole range of types of hotels and travelers demand more for their money.

"Today there are midtown hotels, executive conference centers, resort conference centers, suburban hotels and all the rest. A few years ago you didn't have nearly that selection of property types. You either stayed at a roadside hotel or you stayed downtown," Colbert says. "People today are much more sophisticated in their travel planning. They are much more oriented to value and service, no matter what level of hotel you are talking about.

One of the types of specialization that has developed is the emergence of smaller, all-suites hotels like those operated by L'Ermitage Hotels in West Hollywood. The company has five all-suite hotels, totaling 800 rooms, in a 10-block radius.

West Hollywood and West Los Angeles are tough markets because "We're competing against some of the best-known brand names in the industry," says Carl Cusato, the company's senior vice president of marketing.

Occupancy levels are about 25 percent higher at the company's hotels this year vs. last year, Cusato says, "but part of the reason for that is we're a relatively young company. If we had been here for 20 years, we might have had a hard time improving over last year."

Another newcomer to the L.A. westside market is Four Seasons Hotels, which will open a 287-room, 15-story hotel at Burton Way and Doheny Drive in March. Typical of the trend to smaller hotels in many markets today, the Four Seasons will pursue the business market and cater to smaller, upscale meetings and social functions, a company spokesman says.

Table: Big hotels dominate Los Angeles market

Size of hotels in Los Angeles-Long Beach market

Table: Hotel room rates in Los Angeles area

According to Smith Travel Research of Lancaster, Pa., the Los Angeles-Long Beach area has 60,939 hotel rooms and represents the largest single hotel market in the U.S. in terms of number of rooms. The following chart shows the number and percentage of hotel rooms that fall into each of the price ranges listed.

Photo: Remodeling: Lobby of the Biltmore Hotel in downtown Los Angeles is evidence that existing L.A. hotels have faith in the local market.

Photo: New building: Marriott Hotel in Woodland Hills represents the building surge in the past few years in the local hotel industry.