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Developer Moving Ahead With Plans for New Hotel Tower

Brightening hospitality fundamentals are prompting local developers, such as Chhatrala Group, to move ahead with long-discussed hotel plans, although a project representative for the San Diego-based company emphasizes that it could be three or four years before the downtown Columbia Tower project is actually built.

Other observers note that big challenges remain for nearly all large hotels in the pipeline, first among them financing issues, even though San Diego County’s hotel market is generally performing well above U.S. averages by most measures so far in 2011.

Perry Dealy, development manager for the proposed 387-room, 18-story hotel tower planned for a site on A Street between India and Columbia streets, said developers are optimistic about the improving hospitality climate and plan to revive the permit process on Columbia Tower during the first quarter of 2012.

Arrival Date?

If all elements including financing come through, construction could be completed by late 2014 or early 2015. Chhatrala Group received a city development permit in 2007, and the $100 million project includes a limited-service, dual-branded hotel to be operated under the Hyatt Place and Hyatt Summerfield banners, with four for-sale condo units on the tower’s top two floors.

“The hotel suites could get some families and recreational visitors, but this is a good location for a limited-service hotel (for business travelers),” said Dealy, president and CEO of Dealy Development Inc. in San Diego. “It’s a relatively lower cost alternative to the waterfront hotels downtown, but still with good access to places like Little Italy and the Gaslamp Quarter.”

According to Centre City Development Corp., San Diego’s downtown redevelopment agency, Columbia Tower is one of 11 proposed downtown projects with hospitality elements, representing a total of more than 4,000 new hotel rooms.

Among the largest are the Navy Broadway Complex, with plans for up to 1,500 hotel rooms, which Dealy is managing on behalf of Manchester Financial Group; and the nearby Lane Field project off Harbor Drive, which includes up to 800 rooms.

CCDC spokesman Derek Danziger said nearly all of the downtown projects were in early planning and design stages when they were hit with financing and other obstacles that arose when the economy soured three years ago. He said the city has been working with developers to extend their original development permits to prevent them from expiring while they work to obtain financing.

Despite improvements in the tourism economy, Alan Reay, president of Irvine-based consulting and brokerage firm Atlas Hospitality Group, says large hotel construction projects nationwide face an uphill battle obtaining funding. The few new hotels that are currently going forward, in places like Carlsbad and Oceanside, are smaller, low-rise buildings in prime locations adjacent to the ocean or major tourist attractions.

Departure of Investors

Except for scattered projects in high-profile neighborhoods of markets like New York, Los Angeles and San Francisco, Reay said domestic investors for high-rise hotel construction remain scarce, and most of the overseas investors who funded pre-recession U.S. projects have exited the hotel financing business.

Reay said developers looking to build large hotels are now frequently required to come up with 40 percent to 50 percent of their own cash before a financier will kick in. “You might eventually be able to find someone willing to finance your project, but you could end up contacting 30 lenders before that happens.”

Data from Smith Travel Research Inc. shows San Diego County hotels garnering more than $1.4 billion in total revenue in the first nine months of 2011, up 7.8 percent from the same period of 2010. The region’s year-to-date occupancy rate (71.4 percent), average daily rate ($127.64) and revenue per available room ($91.08) are all up from 2010 and tracking well ahead of U.S. figures.

Reay said that in coming months, developers of stalled projects in San Diego and elsewhere could be looking to amend or renew their existing permits, knowing that starting entitlement processes from scratch after permits expire would prove expensive.

“People are looking at vast improvements in the economy and for hotels in general,” Reay said. “But they know that if they start moving things along now, they’re still looking at 2014 or 2015 before anything comes out of the ground.”

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