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Thousands of hotel rooms poised for development in county, downtown San Diego

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Some observers believe that with thousands of hotel rooms scheduled to come on-line around the same time, it could be déjà vu all over again for the industry in San Diego.

By the Lodging Industry Association of San Diego County's account, between 11,983 and 12,483 hotel rooms have been proposed, and while all of these are not expected to be built, several thousand could come on board just in time for a recession.

After a wave of building in the 1980s, in the early 1990s hotels weren't filling, some went bankrupt, and many others just languished. Today, some experts warn, the cycle may be repeating itself.

"It is my impression that financing has loosened up," said Mike McDowell, chief executive officer for the Lodging Industry Association. "But there are only too many (hotel rooms) if you can't create the demand," he said.

McDowell said though lenders are committed to some projects, others could become skittish when the downturn arrives. In this way, McDowell said the market could be self-regulating; however, developers may need restraint as well.

"If we are committed to building what's necessary, we won't have to suffer the peaks and valleys," McDowell said, adding that hotel lenders are watching the market very closely. "The occupancies are holding in the high 70s."

McDowell said the advantage the San Diego region has besides weather is most visitors don't care whether which city they're in, as long as they are reasonably close to their destination.

McDowell conceded, however, that if several thousand hotel rooms come on-line at once, occupancies could become marginal. For the moment, McDowell said there is a relatively small level of new supply.

With thousands of hotel rooms or more slated to come on-line between now and 2009, Robert Rauch, the president of the San Diego Hotel/Motel Association, said there is a real danger lenders will allow too many hotels to get built "right into the teeth of an economic recession in 2008 and 2009.

"You have to remember that in the early 1990s, everything downtown was built in anticipation of the Convention Center," Rauch said, noting that many of these hotels failed and went into bankruptcy during the last recession.

For one thing, the Convention Center completion was delayed by about two years by construction problems and other issues. Then the economic slump hit.

Today, as in the late 1980s, Rauch, a hotel developer himself, said lenders are lending like there is no tomorrow.

He said San Diego's hotel market -- downtown's in particular -- can survive, if not thrive, during the coming downturn, provided it does a good job of promoting these hotels.

The challenge is how to promote the hotels with the city of San Diego using transient occupancy dollars for almost everything but promoting tourism.

Rauch, McDowell and Reint Reinders, the outgoing president of the San Diego Convention & Visitors Bureau, touted the creation of a tourism improvement district that is 100 percent dedicated to promoting tourism in the city, and could not be raided for other purposes. This, they said, could enable San Diego to compete head to head with markets such as Las Vegas, where it plows millions of dollars back into marketing.

"They (Las Vegas) put almost 100 percent of back into the market. They're a machine," McDowell said.

Reinders said Las Vegas is a good comparison in that if that city can absorb nearly 4,000 hotel rooms every six months without seeing the vacancy rise, "San Diego can absorb 5,000 in 10 years."

But if McDowell is right in his assessment, at least 6,000 rooms could be built along the waterfront from Chula Vista to Carlsbad by 2011-- only five years away.

The planned 1,200-room Hilton Hotels property on the former Campbell Shipyard site near the Convention Center got under way in January. That project is slated for completion in 2008.

An even larger hotel in the works is the planned 1,500- to 2,000-room Gaylord Hotel, which also could have as much as 400,000 square feet of convention space on the Chula Vista Bayfront. This property is not slated for completion until 2010 and like the other bayfront properties, will need California Coastal Commission approval before it can proceed.

The Navy, in conjunction with Starwood Hotels & Resorts (NYSE: HOT) and Manchester Financial, are planning to develop two hotels of 800 to 480 rooms, respectively, in the Pacific Gateway development at the Broadway Complex fronting Harbor Drive.

Those hotels (Westin and St. Regis are the expected operators) are planned to come on-line in 2010 and 2011, but Manchester is required to develop a minimum of 363,000 of space in an office tower for the Navy, which could eventually take as much as 600,000 square feet in the project.

Manchester, which developed both the Marriott and Hyatt towers on the waterfront next to the San Diego Convention Center, also will be working with casino operator Viejas Enterprises on a J.W. Marriott and a Ritz Carlton with 500 and 250 rooms, respectively, on the Lane Field property near a potentially 200,000-square-foot cruise ship terminal that Viejas and Manchester also would develop. Those hotels are projected to be up in 2009.

Viejas also is planning a total of 700 rooms in two hotels in connection with its casino near Alpine. Both of these are planned to be up by 2011.

On the old NTC footprint at the Corky McMillin Cos.' Liberty Station project, a 650-room hotel is being planned to the east and a 350-room hotel is being planned to the west. The smaller hotel could be completed as early as next year, and the larger venue is slated for a 2009 opening.

At another part of the bayfront, on Harbor Island Sunroad Enterprises is preparing to develop 400 rooms that are scheduled to be up by 2008, and another 200 are slated to be finished in 2010.

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