NEW THEME PARK PROMPTS HOTEL-BUILDING RUSH IN ORANGE COUNTY, CALIF.

By Kate Berry, The Orange County Register, Calif.
First published Jul. 16

July 21, 1999
The allure of a new theme park in Anaheim and a strong economy catapulted Orange County into the No. 1 spot for new hotel rooms planned in California, according to a new survey.

The number of hotel rooms to be built in Orange County jumped 27 percent in the past six months -- the highest increase of any county in California. Moreover, Anaheim ranked second among California cities in the number of new hotels planned, surpassed only by San Diego, according to Atlas Hospitality Group, which tracks hotel projects.

"Everyone is banking on Disneyland," said Alan Reay, president of Atlas Hospitality in Costa Mesa, a hotel broker.

The major catalyst for hotel demand is Walt Disney Co.'s newest theme park, California Adventure, which officials hope will draw 7 million to 8 million visitors annually, compared with the 15 million who descend on Disneyland every year.

The new $1.4 billion theme park, 750-room hotel and retail complex are slated to open in early 2001. But other hotels are being built to catch the overflow from the renovated $169 million Anaheim Convention Center, which will open next year.

In all, about $3 billion is being invested in Anaheim alone in the next few years, with the theme park, hotels, renovated convention center and scores of shops, restaurants and theaters. That figure skyrockets to $5 billion to $6 billion when including the public-private partnership Anaheim Resort, which seeks to make the city a "destination" spot for travelers by using state and federal dollars to expand freeways, widen streets and gussy up neighborhoods with signs, landscaping and trees.

"This is one of the most significant developments going on in the entire country right now," said Bruce Baltin, a senior vice president with PKF Consulting, a hotel-industry consulting firm in Los Angeles

"There's been so little growth in room supply in Southern California throughout the '90s, so there's plenty of pent-up demand," Baltin said. "Even if the economy slowed, there'd still be demand."

The new round of hotel construction follows a long dry spell. New hotel construction in many cities in California disappeared during the recession of the early 1990s. Tourism also took a big hit

"It's easy to get an increase because we've had virtually no building for 10 years," said Gregory D. Casserly, president and chief operating office of Costa Mesa-based Tarsadia Hotels, the largest hotel owner in the Disneyland area.

Orange County will brace for the addition of 12,271 hotel rooms, from 45 hotel projects, according to the survey. The county currently has about 46,000 hotel rooms. Los Angeles County ranked No. 1 in the survey of California, with 52 projects expected to add 7,580 hotel rooms

San Diego County took the No. 2 slot with 49 hotel projects and 11,057 expected hotel rooms.

Occupancy rates in Orange County are hovering around 70 percent, compared with 80 percent occupancy in San Diego and 74 percent to 75 percent occupancy in Los Angeles County, according to PKF Consulting.

But the projects won't all get built. The survey tracks developments that have been filed with city planning departments and other local government agencies. Some are under construction; others are in the planning stages. Plenty of developers are still studying the area before making the leap to build.

While Anaheim hotels cater mostly to price-sensitive tourists, the new projects are hoping to command higher daily room rates.

"Nobody can really peg what demand there is out there for first-class hotel rooms," said Casserly. "We know that this area has been underrepresented at the high-end for some time."

Other areas of the county are finding demand for high-end hotels that cater to businesses.

Irvine and Newport Beach each have five hotel projects in the works, with a combined 2,598 new rooms. Anaheim beat out all other cities in Orange County with 16 projects, and Garden Grove came in second with seven. Most of the new hotels are planned to open within 24 months.

By far one of the largest and most ambitious of the projects is Pointe Anaheim, across from Disneyland, which ranked third among the Top 10 hotel development projects in California. The $550 million project includes three hotels with 1,050 rooms, and 565,000 square feet of retail space.

Charles Ahlers, president of the Anaheim/Orange County Visitor & Convention Bureau, said the city is trying to capture more convention business, increase the average length of stay for each visitor and, of course, attract more people.

"We can sustain this," Ahlers said. "The missing element after this phase of growth will be the airport. We have a very bullish future."

But the frenzy of new construction raises questions about overdevelopment and the history of boom-and-bust cycles in the region.

"There is a potential with all of these projects that there will be oversupply and a downward effect on prices," said Reay, the study's author.

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(c) 1999, The Orange County (Calif.) Register.