Los Angeles Downtown News
January 31, 2005

New Kinds of Rooms at the Inn
Downtown Hotels Go Condo, and Shake Up the Community

by Kathryn Maese

The hunger for Downtown housing combined with the specter of increased hotel competition in the area has sparked a unique trend: At least four area hotels are considering converting all or part of their properties into condominiums or apartments. Some would provide residents with traditional hotel amenities like room service.

However a group of labor and government figures are balking at the move, and are taking steps to stop a process they say could cost the city thousands of jobs and hotel rooms. The issue has heated up recently as the City Council's Planning and Land Use Committee is studying a plan to implement a six-month moratorium on all such conversions. A vote is expected in the coming weeks.

Among the hotels considering the switch to housing are the 188-room Hilton Checkers at 535 S. Grand Ave., the 1,400-room Westin Bonaventure at 404 S. Figueroa St., the 205-room Holiday Inn at 750 Garland Ave., and the 300-room Best Western Mayfair at 1256 W. Seventh St. The Hyatt Regency at 711 S. Hope St., which is currently for sale, has also been cited as a candidate. Outside Downtown, the St. Regis in Century City and the Furama Hotel near Los Angeles International Airport are both turning to condos.

Though the trend has taken root in Boston, Manhattan and the South Beach section of Miami, Los Angeles has come late to the game. Real estate experts predict interest will increase as aging or rundown hotels are targeted for development, and as hotel owners seek to shore up lagging convention and tourism business by converting a portion of their rooms.

"It's sparking people's interest because we're in the middle of a condo upswing," said Benjamin Reznik, a land use attorney whose firm Jeffrey, Mangles, Butler & Marmaro will host a condo-hotel conference in Palm Springs next month. "There's an appetite in Los Angeles and a high demand to try and ride that wave. These will largely appeal to a combination of corporate clients who don't come into town frequently or people who just see this as a good investment."

Reznik said a moratorium on further conversions would be unwarranted. "There is no crisis here in the city," Reznik said. "Converting them makes more economic sense and will enhance the city's economic interest."

Carol Schatz, president and chief executive of the Central City Association and the Downtown Center Business Improvement District, said the city should be concerned not just about the loss of union jobs, but overall economic growth.

"When you adaptively reuse a hotel, it creates construction jobs, provides jobs for the people who continue to serve residents, creates property taxes and increases the assessed value of the property," Schatz said. "We're dealing with a housing supply issue that we have long maintained has been a problem at every level."

Preparing for Competition

Conversions appeal because of the profit potential. Industry officials say hotel owners can earn 15% to 40% more per square foot than with traditional condos, when combined with built-in amenities such as housekeeping, maintenance and room service. Hotelier Peter Zen said that option could help his 1,400-room Westin Bonaventure hotel.

Zen said he is worried that a proposed 1,200-room Convention Center hotel next to Staples Center would sap business from the Bonaventure and other Downtown hotels. He said that he might convert a portion of the Bonaventure into for-sale housing.

"Business is definitely slow," Zen said. "We have never exceeded 60% in occupancy, so we are looking at ways to reach an adequate return for our money."

Chicago-based Falor Companies, which specializes in purchasing existing hotels and converting them to condos, plans to transform the Hilton Checkers by April, according to the company's website. Falor didn't return a call for comment.

Most troubling to opponents of the practice are hotels that convert entirely to residential. The condo-hotel trend in New York City has led to a decrease of more than 6,000 regular hotel rooms, according to Daniel Lesser, senior managing director of Cushman & Wakefield's hospitality group. Entities such as the Plaza, the Mayflower and the Empire have gone completely condo.

In Downtown, the 1960s-era Holiday Inn in City West is leaving the hotel business. Newport Beach-based owner MKT Community Development is turning the six-story structure into 205 studio apartments with plans to open in March.

The concept will be similar to a condo hotel in that the developer is considering providing hotel-like amenities such as room service, a restaurant, a salon and even a bartender who can pour a martini for a resident who's had a long day. About 85% of the apartments will be priced at $1,200 a month, though some will cost up to $2,000.

"It will have a hybrid hotel and residential complex feel," said leasing manager Stephen Shapleigh. "We want it to be a place for people on-the-go, or bi-coastal people who fly in to L.A. seven to 10 days a month and don't want to pay hotel rates. So they can come home and cook a meal as they would be able to do in a residential complex."

The Mayfair hotel on Figueroa Street will be converted into traditional condos. Craig Lawson, a land use consultant at Craig Lawson & Co., is moving forward with the entitlement package.

"We've seen several cases in which older hotel buildings are being proposed for conversion to residential units," Lawson said. "It's only being considered by those hotels that aren't renting enough rooms to make it financially viable."

Jobs and Tax Revenue

Critics see a different reality. Councilman Martin Ludlow, who proposed the moratorium, has said the plan would cost the city 2,000 hotel rooms - or 5% of the total stock - in addition to 1,000 jobs and revenue generated from the 14% hotel bed tax.

The Los Angeles Alliance for a New Economy (LAANE), which opposes the conversions, said the rebounding tourism industry is becoming strong enough to sustain hotels and jobs as it returns to peak 2000 levels.

"The City Council is talking about spending a fair amount of money to support a Convention Center hotel," said James Elmendorf, a senior policy analyst for LAANE. "So there's a recognition that we need more hotel rooms to attract and build tourism. When you lose hotel rooms, you go backward. You're also talking about losing $8-$10 million in annual tax revenue, which means fewer funds for services."

Councilman Ed Reyes, who chairs the PLUM Committee, said he expects a report from the city's Chief Legislative Analyst and the City Administrative Officer by late next month detailing the impact of the trend on city coffers, tourism and legal issues.

"On the one hand we want to ask how do we preserve property rights while preserving hotels," Reyes said. "Whether this is an overreaction is the question we want to find out. But as you start peeling back the onion, things get more complicated."
Contact Kathryn Maese at kathryn@downtownnews.com.


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