By Todd Setter
Market Development Representative, West Coast
Tsetter@steelframing.org

The slowing economy is not deterring bullish hotel developers in California, according to a new study of the state's year-to-date hotel development trends. The study, by Irvine-based Atlas Hospitality Group, shows that developers opened 4,500 hotel rooms in the first half of this year, nearly four times as many as they did during the first half of 2007.

One of the most dramatic jumps in rooms under construction is in Los Angeles County, where the number has leaped 241% to a total of 4,558 rooms in 25 hotels in the first half of this year. That compared with 13 hotels totaling 1,336 rooms under construction in the first half of 2007. One reason for the new construction in L.A. is that Los Angeles is one of the strongest hotel markets in the country, according to Alan Reay, president of Atlas.

The new openings in Los Angeles and Orange counties for the first six months of the year included the 100-room Hampton Inn & Suites in Burbank, the 94-room Holiday Inn Express in Hollywood, 110-room Hampton Inn & Suites in Seal Beach, and the 36-room Palihouse Holloway in West Hollywood, all of which were mid-rise structures.

In addition to opening more rooms and having more under construction, developers have more hotel rooms in planning this year. On a statewide basis, the number of rooms in planning increased to 73,655 in the first half of this year, versus 64,908 for the same period last year.

Reay tells GlobeSt.com that the increases in new hotel openings, construction and rooms in planning reflect the fact that developers have been able to secure bank financing for new hotel construction despite the credit crunch. That's because the source of many if not most hotel construction loans is commercial banks, which have continued to provide construction loans despite the troubles in the capital markets.

The Atlas report notes that the “complete collapse of the subprime mortgage market and its huge impact on residential developers” is expected to affect hotel development. “We are going to see a greater supply of affordable land as lenders off-load their foreclosed inventory at huge discounts,” the report says. “This will make a lot of sites more appealing and affordable to hotel developers, especially in urban markets where they were competing with condo developers,” who have now, pretty much, disappeared from the market.