A report on hotel construction in California found that there will soon be no more hotel construction.
“We predict that the vast majority of hotel projects in planning simply will not be built,” concludes Atlas Hospitality Group in its survey of hotel construction in California in the first six months of 2020.
At least developers with projects in the planning stages can always back down, said Justin Myers, vice president of Atlas Hospitality, an Irvine-based hotel brokerage firm. Other hotels under construction are in distress, while even the completed ones are unwilling to open due to dismal occupancy rates amid the coronavirus pandemic.
Myers gave the example of a 600-room JW Marriott in Anaheim near Disneyland. Construction was completed in March, but the hotel only opened this week.
Overall, 194 hotels were under construction in California as of June 30, down 17% from 231 hotels built around the same time in 2019. LA County has 49 hotels under construction, according to the report. .
The number of hotels built could decline further around this time next year.
Atlas Hospitality estimates that there are 1,246 hotels in the pipeline across California, which means construction has not started but a municipal government has issued project permits or some sort of approval. But those projects will almost certainly be scrapped, Myers said, as rising construction costs and low occupancy rates make a construction loan unjustifiable.
In addition, as the projects under construction move forward, they could be financially precarious. “We have also seen a number of hotels under construction default on their construction loans and go into foreclosure / bankruptcy,” the report said.
Myers estimated that the number of troubled hotel projects statewide is “over 80,” or nearly 40% of ongoing projects. Examples include Los Angeles developer Urban Commons defaulting on a Bank of America loan to build a 200-room hotel in Koreatown.
The problems facing hotel construction in LA come after a surge in hotel projects for years, supported by municipal tax incentives to build more downtown accommodation. LA County has many more projects than other populated counties in California – its 49 ongoing projects compare to 11 for San Diego County and 4 for San Francisco County.