More public spaces. Catering to international visitors. Hotels with local flair.
October 23, 2016 – Orange County Register
Those are just a few trends veteran developer Bob Olson is seeing in the hotel industry. He owns Irvine-based R.D. Olson Construction and Newport Beach-based R.D. Olson Development, both of which are juggling half a dozen hotel projects in an industry seeing years of growth after the Great Recession.
Hotel expansion in Orange County is ongoing, as developers (in addition to Olson) build out 10 new hotels, which will add 1,504 rooms to the marketplace. Six hotels already have opened this year, according to Irvine-based Atlas Hospitality Group.
“There are markets that are getting overbuilt,” Olson said. “The losers in those markets will be the old hotels. It’s not that we’ll be overbuilt – we’ll be under-demolished.”
Alan Reay, president of the Irvine-based real estate company Atlas Hospitality Group, agrees.
“Year-to-date hotel rooms under construction for the U.S. are up almost 30 percent from where they were last year,” Reay said. “A lot of people are worried that we’re building too many hotel rooms.
“It’s really a big threat to the older hotels that haven’t been updated or renovated. A lot of the hotels have lost their franchise because they haven’t kept up and are suffering. These are the hotels that will have to be demolished.”
The Register sat down with Olson and Bill Wilhelm, president of R.D. Olson Construction, to discuss the industry and their projects underway. Their answers have been edited for length and clarity.
The Lido House Hotel in Newport Beach is a huge, historic project. Can you tell me about plans for the development?
Olson: That property is the old City Hall. We had to compete to win that project. I live in Newport Beach. So for me it was pretty simple what the concept should be. The concept is Newport nautical architecture and lifestyle. Our whole concept is to be curators of Newport Beach. We’re one year away from opening.
On the development side, how do you select what properties you want to be involved with?
Olson: We focus on the markets we like, which have multiple demand generators. Then we work to try and find the land. The last 15 hotel’s we’ve developed are ground up. We’ve opened 11 since the Great Recession.
How hard is it to develop a project like the Paséa, right across from the beach?
Olson: You could not do a project like this again today. The entitlement process took the original developers 11 years to get the entitlements, and they got hit by the Great Recession. We were fortunate to buy this with all the entitlements. But the property plans are our own plans, nobody else’s. We brought in Pacific Hospitality Group as our operating partner and co-developer.
Are these considerations different from the construction side?
Wilhelm: We look at the customer, the client, the partner. Location is also important, but also the uniqueness of the property. Whether it’s a hospitality project or one of our timeshare projects or even an education project, it’s finding a product that’s special to the community.
How has Airbnb affected the hotel industry?
Olson: It’s hard to measure. We know that when the Super Bowl happened, Airbnb took the top off the demand, or the hotels didn’t sell out because that last demand went to Airbnb. But we’re not seeing an affect on our hotels. For us, we need to be able to compete. We need to provide our guests something that Airbnb can’t, is not or cannot do.
Are you seeing more demand to work on existing hotels?
Wilhelm: The Los Angeles market is a very hot market right now for revamping and reuse and repositioning. We’re starting to see it some in the Orange County market, but not to the extent of the L.A. market, which is doing things like taking an office building and repurposing it as a hospitality project.
Last year, about 97 percent of hospitality projects were “new ground up.” Today, about 51 percent is adaptability, reposition and renovation, and only 49 percent is new ground up. We’re starting to see a swing in that market. Part of it is saturation of the new ground up, the ability of developers to find land, the price side of the equation, getting to market as fast as they can and development costs which are making deals more difficult. Construction costs over the last 12 months have soared 10-15 percent in California.
Olson: Part of it’s new building codes, energy code changes which is affecting internal systems, the mechanical systems.
Are there any issues finding workers?
Olson: There are huge resource issues now. Resources are a huge cost. R.D. Olson has longstanding relationships with subcontractors. It really gives us a competitive advantage. Bill has access to companies, to subcontractors, who love working with him because of what we do. We get jobs done, everybody gets paid and it’s a good project.
For R.D. Olson Development, having a construction company is a competitive advantage in the marketplace as well.
Wilhelm: That’s why the right customer fit is so important. We’re bringing our subcontractors to the table, guys that rely on us for funding. And they are guys that we can count on because they know they are getting paid on time. We really focus on the relations. We spend more time today on enhancing those relationships and building new relationships. We need to have subs capable of doing work on all the different types of projects we do.
There’s also a geographic element. A year ago, you could take guys from Orange County to Los Angeles. Today, it just doesn’t happen. Resources are limited, so you need to manage relationships in geographic areas. Guys don’t go out as far when there’s work for them right in their backyard.
Orange County’s tourism groups have made huge efforts to attract more international tourists to Orange County. Are you seeing more of these visitors at your properties, and is there anything being done to attract these customers specifically?
Olson: Orange County is a great destination for international travelers. We’re especially seeing a lot of visitors from the China market.
We just finished one project, the Casino Hotel in Bell Gardens, that was truly designed and implemented based on the Asian gambling traveler. We’re involved in a couple of hotels today at LAX airport, and part of that theme is the international travelers, providing for them once they’ve checked out but have six, seven, eight hours to kill before their flight. We’re creating special guest services rooms that are suited to the different Asian cultures. Our menus are also adapting to the Asian traveler.
Our biggest growth for the international market is definitely China; 200 million middle-class people are in China. That’s more than half of our population. The numbers are staggering.
What do you think the hotel industry will look like in the next few years?
Olson: When you stay at our hotels, you really feel connected to where you are. The Paséa is all about a beach community. I’ve watched international travelers come in with amazement. In downtown Pasadena, that hotel is all about Old Town Pasadena, the architecture, the interior. You know you’re in a town with a lot of history. Even though we work on branded hotels, too, there is always a theme. The theme for the Irvine Spectrum hotel is the Irvine Ranch and the history of the ranch. That will have a rooftop bar.
Public spaces are really becoming space to connect. When you walk through a hotel, there will be many places to sit down and connect in small groups.
Is there any part of the Orange County hotel industry that is untapped at this point?
Olson: If you look at where we’re developing, you are going to see that it plays into our strategy of building where there are multiple demand generators and opportunities for new product.
Where are we now in the development cycle?
Olson: All developers want to know where we are in the cycle. We know where we were in 2009; it was terrible. Are we at the end of this cycle of recovery? Our philosophy as developers and builders is that we can’t predict when the cycle ends, but we can be prepared for it. We’re built for taking advantage of the great economic times and are prepared for the down times. The short-term horizon, we think, looks good.
Wilhelm: On the construction side, in the next couple years we still see sustainable growth. We’re always looking for where we go next and how to respond to changes in the cycle. We’re strengthening our core and looking at different industries.
Irvine and Anaheim seem to be major development hubs right now. Can you tell me about why there are so many hotels being built in these areas?
Olson: For Anaheim, it’s the demand that Disneyland’s creating. It’s an incredible market with Disneyland and the convention business.
For Irvine, the Irvine Spectrum is the new growth area for Orange County, both established businesses and entrepreneurial businesses. It’s the center, a gateway for quality housing, great, educated employees, and it really is the convalesce of tech, education, recreation, so many different demand generators and exciting things that are happening. With Great Park, the baseball fields and soccer fields and there’s just so much for the community to do and for people outside of the community as well. The Irvine Co. is really creating a 24-hour city with the retail, the restaurants, the housing and the tech offices.
Can you tell me about the hotels you have in the works for each of these areas?
Wilhelm: In Irvine, we have our full-service property underway at the Spectrum, a 15-story Marriott. We’re working on a Courtyard Inn and Suites in Anaheim, and we’ve got two other hotel properties in Anaheim we are working with existing clients on. That market is continuing to stay very hot.