Mayor Lauren Meister will ask the West Hollywood City Council on Monday to declare a moratorium on the development of new hotels in WeHo until the city can conduct a new study on their impact on the existing hotel market.
In her proposal, Meister notes that last September the Council was given an analysis of the WeHo hotel market that projected a major decline in hotel occupancy and in the rate per hotel room if the city grants permits to hotel projects currently under review on top of those that already under construction or that already have been approved for construction. Yet, she said in an interview with WEHOville, the Council simply “received and filed” the analysis without acting on it.
The analysis, by PFK Consulting and CBRE Hotels, noted that WeHo hotel projects under review, under consideration and already approved for construction would add 1,229 rooms to the city’s current 2,060 hotel rooms, an increase of 60%. The study projected that by 2020 the hotel room occupancy rate would fall to 68% from the rate of 83% in 2015. It also said that the average daily room rate would fall to $243 from an average of $279 if both hotels that have been permitted but aren’t yet under construction and those that are under review but not yet permitted actually are built.
An analysis of the PFK/CBRE study by the Atlas Hospitality Group, a hotel financing and advisory group, reported that the additional hotels would “cannibalize the market.” In her presentation to the Council, Meister notes that the study said it would take until 2026 for the city’s hotels to return to the 80% occupancy rate. In recent times the existing hotels have been at that rate or higher.
Meister also said that four projects under consideration were not included in the PFK study. They would add an additional 443 rooms, increasing the supply of hotel rooms by 80%. In an interview with WEhoville, Meister said the study also didn’t consider the impact of two major hotel projects under construction next door in Beverly Hills.
Meister is asking the Council to consider implementing policies, based on her proposed new study, that would promote diversification in the local hotel market. For example, she noted, there is no WeHo hotel that contains major conference space, which would give it an edge among some business and organization travelers.
Other factors that should be considered, Meister said, are the impact of the strength of the U.S. dollar and of foreign opposition to the Trump administration. There have been numerous calls for a ban on travel to the United States because of Trump’s policies and news articles documenting the impact of those calls. She also is asking the City Council to consider the impact of new hotels on water usage.
Meister proposes that the city consider ways to diversify its economy, which is heavily dependent on tourism. “If there is another recession we need to know where our revenue is coming from,” she said.
Meister’s request may put her in opposition to City Hall, which has seen new hotels as one way to boost the slow growth in the city’s General Fund revenue.
In a report to the City Council last month, City Manager Paul Arevalo and the city’s Finance & Technology Services Department said the annual growth rate of the city’s overall General Fund revenue was only 2% in the first half of this fiscal year. The report attributed that low rate not to a slowdown in the local economy but to the fact that some of the city’s main sources of revenue are at or near capacity.
The hotel room occupancy tax, which is the city’s largest single source of General Fund revenue, did do better than the average. Hotel tax revenue was up 7% to a total of $11.3 million as of Dec. 31, 2016, the middle of the city’s fiscal year.
Arevalo’s report noted that hotel room occupancy rates recently have been in the high 80 percentiles and that average daily room rates are above $300 a night. It also noted that many of the city’s bars and restaurants are at capacity.
“With this in mind,” the report said, “any significant revenue growth will likely be generated by new sources.”
Among those sources, the report said, are the James Hotel, expected to open in May with 286 rooms; the Kimpton La Peer, which will open this Summer with 105 rooms, and the Marriott Edition, which will open in Spring of next year with 190 rooms.
The hotel projects for which official environmental impact studies are underway but that are not under construction are the Arts Club at 8920 Sunset Blvd. (15 rooms) Faring Capital’s proposed Robertson Lane project (251 rooms) and proposed Orange Grove and Santa Monica Boulevard project (78 rooms), and a project proposed for 8950 Sunset Blvd. between Hammond and Hilldale (165 rooms). An internet search shows the 8950 Sunset Blvd. project is associated with Mohamed Al-Marri of Studio City.
The proposed hotels that are either under initial review or expected to be submitted for review are the Perry, another Faring project, at 8816 Beverly Blvd. (130 rooms), an unnamed project proposed for 9034 Sunset Blvd. (185 rooms) and a hotel proposed for the current site of Barney’s Beanery at 8447-8457 Santa Monica Blvd. (113 rooms).
Meister’s proposal cites the Atlas Hospitality Group’s prediction that construction of all hotels under consideration might mean a decrease in the hotel room occupancy tax of $1 million in 2020 and 2021, given the downward pressure it would put on hotel room rates. Meister said she recently has met with management of five or six existing local hotels, who she said are not happy about the growth in competition.
The City Council will consider Meister’s proposal at its meeting on April 3 at 6:30 p.m. at the City Council Chambers, 625 N. San Vicente Blvd. south of Santa Monica.