What is the "Secret Sauce" to Developing New Hotels in Los Angeles?

Downtown LA is booming

Great news for hoteliers, developers and the hospitality design industry: it may sound like a cliché that Downtown Los Angeles is one of the hottest real estate markets in the country and the world, but even a casual observer of Downtown would have a hard time denying it. Construction is booming and Downtown is gaining a new vibe and a new groove.

Los Angeles has a shortage of hotels and needs more hotels urgently. The hotspots for developing hotels in Los Angeles are Downtown, Hollywood and Beverly Hills. All three locations are considered destination locations for hotels, with a glamor recognition-and locations drive reservations. LA is No. 3 in the world for number of hotel rooms under construction per Alan Reay, Atlas Hospitality Group.

Here are 5 reasons why Downtown LA is booming:

1.       The new convention center, stadium and art museums are attracting more and more visitors. Currently 40 hotels with 5,468 keys out of a total of 11,120 are under construction or in the pipeline for Los Angeles, but there is still room for more. LA has 3,500 rooms in walking distance to the Los Angeles Convention Center, LA Live and the Staples Center, which is pale in comparison to San Francisco with 18,000 rooms in walking distance to the Moscone Convention Center. Imagine Downtown LA becoming a walkable city.

2.       As property price are booming in China, LA is an undervalued, but also the healthiest gateway for hospitality in the US today from Asia.  Its relatively close proximity to China makes LA a very desirable location as a diversification strategy for large Chinese hotel and mixed-use developers, many of whom have kids attending school in the US. A mixed-use and residential component is very attractive for investors and most hotels are sold even before they are built. The biggest developers are currently Greenland, Oceanwide and Wanda per Rob Lowe, Destination Hotels and Resorts.

3.       Not only are new hotels needed, but most existing hotels are in dire need of renovations as most hotel owners were holding back for too long on property improvements due to the soft economy. The result is outdated and lackluster hotels.

4.       Soon it will be decided whether LA will be hosting the 2024 Olympics: creating 2 weeks of booming business, but with an emphasis of the importance of determining the long term use afterwards.

5.       As more hotels come into the market, so do more companies, retail, residences and civic developments. Hotel values more than doubled per room in LA County since 2013 and hotels are very lucrative for cities due to the impact of sales taxes and property taxes. Typically 1$ spent at a hotel generates 2$ spent in the neighborhood, creating a healthy, vibrant, symbiotic relationship. Another reason is that hotels only require ½ parking stall per room, versus 2-2 1/2 for multifamily residences. A new trend is Extended Stay hotels as a bridge between residential developments and hotels.

These efforts come on the heels of an already impressive surge in Downtown development. All across Downtown, from Chinatown to City West to the Arts District to South Park, apartment and condominium buildings are under construction. A slate of hotels are in the works, and there are plans to build office spaces for both white collar workers and creative firms, creating a welcoming injection into the heart of the city. New metro links make Downtown a much more viable destination.

What is holding back the development?

The biggest cloud in horizon is slow approval processes, more difficulties gaining construction loans, citizen groups creating micro delay and macro geopolitical concerns.

 West Hollywood and Beverly Hills

With a current inventory of more than 12,500 rooms, the Hollywood and Beverly Hills area has 816 hotel rooms under construction and another 1,331 more in the planning stages, according to CBRE. The name recognition alone is a valid appeal for luxury and family travelers.

Hotel design trends relevant to LA

Creating unique guest experiences that tell a story of place and history of place. Curated experiences are essential, such as the booming art scene in LA, both the more established art museums and the immersive Arts District, culinary fusion and the movie industry. Sophisticated travelers expect luxury, unique immersive experiences and an experience of exclusivity. Multi-generational travel expect culturally diverse family lifestyle experiences and adventures beyond Disney Land and Universal Studios. Other trends are flexible convention facilities, and food and beverage concepts as market place, inspired by CA foodies.