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Southern California poised for record number of new hotel rooms in 2019

Lori Weisberg, The San Diego Union-Tribune on

Published in Business News

SAN DIEGO -- Even as hotel development in Southern California reached a new high last year, with more than 16,000 rooms under construction, the outlook for the future is not nearly as bullish as in years past.

In all, some 112 hotels accounting for 16,700 rooms were in various stages of construction by the end of 2018 -- a 28 percent increase over 2017, according to new data released Tuesday by Orange County-based Atlas Hospitality Group.

While the number of hotel rooms being built in San Diego County -- 2,458 -- was down slightly compared to 2017, the growth in construction activity for Los Angeles and Orange counties was far more robust.

In Los Angeles, more than 6,700 rooms were under construction -- an increase of 26 percent -- while in Orange County, the number of rooms under construction -- 3,128 -- surged nearly 90 percent.

Most of the Orange County hotels are in Anaheim, led by the 613-room Westin Anaheim Resort. The Anaheim building boom is likely fueled by the recently completed expansion of the city's convention center and Disneyland's longstanding -- and much anticipated -- plans for a new Star Wars land, which will open this summer.

While all that construction activity portends a record-breaking number of hotel openings in 2019, future development is likely to slow as lenders grow more squeamish about financing new projects during what appears to be the peak of the market cycle for lodging, say analysts.

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"Lenders are more cautious and somewhat concerned about new supply coming into the marketplace, and for larger, full-service hotels they are requiring more equity from the developers," said Atlas CEO Alan Reay.

"Secondly, the cost of construction, including the cost of raw materials and labor, has skyrocketed. One of the negatives of a very strong economy is the labor pool is very small in terms of finding people to work on your project so contractors are bidding high to find labor. If you're not out of the ground today, I think it's going to be a tough situation."

In Southern California, Atlas says there are more than 90,000 hotel rooms in various stages of planning, including more than 17,000 in San Diego County, but it's likely that only a fraction of those will ultimately move forward.

Cisterra, a San Diego-based developer, has long had plans to build a Ritz Carlton in downtown San Diego, but the $450 million project, which also includes office space, housing and a gourmet market, was delayed by a union-backed legal challenge. That litigation, though, has been settled, and Cisterra has now been trying to land financing.

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