The newest downtown hotel complex buzzed with activity this week as carpenters, electricians and gardeners hustled to put the finishing touches on the $970-million skyscraper that rises over the Los Angeles Convention Center and the L.A. Live entertainment center.
But when the glass-sheathed tower that houses the JW Marriott and Ritz-Carlton hotels opens next month, it will face one of the worst slumps in years for the hospitality business.
Hotel foreclosures in California more than quadrupled last year as business travelers and vacationers cut back spending and commercial real estate values sank, forcing owners into default. In 2009, hotel revenues took their steepest decline in more than two decades, and the occupancy rate in Los Angeles now hovers at a meager 65%.
"We wish we were opening in a better economic climate," said Javier Cano, general manager of the two hotels.
The hotels open in an atmosphere that is strikingly different from the glittering times that spurred their construction. In 2006 when developers announced plans to build the 1,001-room complex, the typical Los Angeles hotel enjoyed double-digit annual increases in revenue and robust occupancy rates.
Nearly four years later, an industry-wide slump has struck the upscale chains that cater to business travelers particularly hard. Stung by the recession and mindful of the political backlash against corporate excess in the era of federal bailouts, company travel managers slashed travel budgets, eliminating trips or mandating that employees stay at less expensive hotels.
"They are going to have a tough first year," said Bruce Baltin, a hotel industry analyst and senior vice president of PKF Consulting, referring to the Marriott/Ritz project. The difficult times, he said, will likely last two more years.
Other upscale hotels are also opening in Los Angeles under economic clouds this year, all aiming to survive the steep drop in demand.
The $360-million W Hollywood Hotel & Residences at the corner of Hollywood and Vine is scheduled to open Jan. 28. The development, with 305 rooms and 143 condominiums, is meant to appeal to a well-heeled clientele in the entertainment industry. A red carpet leads guests from the driveway to the hotel lobby. Films will be shown on a screen that drops from the ceiling at the hotel's 3,500-square-foot outdoor lounge.
"Of course, the economics of the past year can't help but make one feel concerned, but I feel that with W Hollywood we have the perfect marriage of brand, industry and location," said general manager Jim McPartlin.
Meanwhile, the aging Los Angeles Holiday Inn across the street from Staples Center is undergoing a $10-million renovation and name change to attract tourists and visitors to the glitzy new restaurants, clubs, museums and theaters at the L.A. Live complex. When the work is completed in June, the 195-room hotel will be renamed the Luxe City Center Hotel, part of an upscale Los Angeles-based hotel chain.
Efrem Harkham, chief executive of Luxe Hotels, said the new hotels will only attract more visitors to the city.
"Now people have got a place to go and a choice of beautiful hotels to choose from," he said.
Although it may seem foolish to open such high-end projects now, experts say many hotel developers start planning up to eight years in advance, long before signs of economic trouble begin to appear.
"In some regards, their hands are tied as to when they can open it," said Jeff Higley, an expert on troubled hotels and spokesman for Smith Travel Research Inc.
Higley said hotel operators will struggle for the next year or so before revenue and occupancy rates begin to improve.
"We are seeing some stabilization in hotels, but by no means a robust rebound at this time," he said.
As for L.A.'s new Marriott and Ritz-Carlton, Higley said the hotels' biggest advantage over other upscale establishments in the region is location.
The new hotels are within walking distance of Staples Center as well as the Grammy Museum and the Nokia Theatre at the L.A. Live complex.
"Downtown Los Angeles, overall, has lots of energy to it," Baltin said. "The renaissance is still going on."
Even more important, the hotels are near the Los Angeles Convention Center, which in recent years has lost events to convention halls with more conveniently located hotels, such as those in Anaheim and Las Vegas.
The Marriott will be the headquarters hotel for the L.A. Convention Center, which hosted more than 420 events in fiscal 2007-08. With nearly 100,000 square feet of indoor meeting space, the new Marriott can supplement the convention center's 720,000 square feet of exhibit space.
The two hotels will operate in the same building, with the Marriott occupying the lower floors and the Ritz-Carlton hotel and residences above. Hospitality giant Marriott International owns both chains.
The Marriott opens Feb. 15 with 878 rooms at rates starting at $179 per night. It will occupy the fourth through the 21st floors of the tower. The Ritz-Carlton opens a month later with 123 luxury rooms on the upper floors of the tower, with rates starting at $369 per night. The 224 condominiums, ranging in price from $1.4 million to $10 million, occupy the 27th through 52nd floors.
From some of the condominiums high above the city, residents can look out the floor-to-ceiling windows to see the Hollywood sign to the north and watch the sun set over Santa Monica. Traffic moves at a crawl below on the 110 and 10 freeways, but the noise doesn't seep through the extra-thick windows.
The complex hosted its first major event Wednesday night, a fundraiser for the City of Hope medical center. The black-tie affair was attended by Mayor Antonio Villaraigosa and Gov. Arnold Schwarzenegger, with entertainment provided by rocker Jon Bon Jovi. Just before the gala, Cano, the hotel manager, gave Marriott President Arne M. Sorenson his first tour of the facility.
Sorenson acknowledged that the two hotels will feel the effects of the recession for several years. He estimated that occupancy rates would be about 50% in 2010 and 60% in 2011. By comparison, industry forecasts by PKF Hospitality Research predict the average occupancy rates for upper-priced hotels in Los Angeles will be 67% this year and 70% in 2011.
Cano remains optimistic, saying early indications suggest the hotels will eventually thrive. He pointed out that clients have committed to buy about 60% of the Ritz-Carlton condominiums. The hotels have already booked about 300,000 room nights over the next few months, including for members of the state Democratic Party, which is scheduled to meet there in April, Cano said.
"Big hotels always take a few years to ramp up," he said.