mgac q1 2016 hospitality market overview
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HOSPITALITY MARKET OVERVIEWLOS ANGELES
As of the second quarter of 2016, the City of Los Angeles has 915
hotels and a total of 133,573 rooms – the second highest after
New York City. The hospitality market is robust, with a total of 95
new construction projects (ground up and conversion), and 74
ongoing renovation projects1. According to the Los Angeles County
Economic Development Corporation (LAEDC), the leisure and
hospitality industry added 9,700 jobs in 2014 and the construction
sector added 8,200 jobs during the same period2.
A geographic presentation of major hotel activities – for
transactions or development in the City of Los Angeles is illustrated
below. Activities are densely located primarily in Downtown Los
Angeles (DTLA) and the Los Angeles Airport (LAX) area. Six
upscale/luxury hotels are currently in construction, including the
InterContinental Wilshire Grand, Hotel Indigo at Metropolis, Century
Plaza Hotel, Oceanwide Plaza Hotel, Esplendor Hotel, and NoMad
Hotel. Another nine upscale hotels are under planning, including
the JW Marriott L.A. Live expansion, W Los Angeles Downtown,
and Proper Hotel Case Building, to name a few. Hotels in both
construction and planning are concentrated in DTLA.
1HotelMarketData2“2016 Southern California Lodging Forecast,” PKF Consulting & CBRE Hotels, 2015, http://www.ci.garden-grove.ca.us/internet/pdf/2016-so-cal-lodging-fore-cast.pdf
OVERVIEW OF LOS ANGELES HOSPITALITY MARKET
01 Hospitality // Los Angeles, CA
Status Open In Construction Planning
HOTEL DISTRIBUTION
During the three-year period from 2013 to 2015, the City has seen
consecutive increases in the number of new building permits
issued for commercial use, the volume indicating market strength.
According to Los Angeles Open Data3, this number has grown
almost exponentially: 80 commercial building permits were issued
in 2013, 153 commercial permits were issued in 2014, and 245
permits were issued in 2015. Downtown Los Angeles has amassed
the largest construction projects based on permit dollar values.
The map on the next page demonstrates the commercial building
permit locations during the period from 2013 to 2015. The size
of the circle represents the project value - the larger the circle,
the higher the value of the project. In 2015, the total value of
commercial building permits issued was almost $3.4 billion. The
map indicates that there are three construction hubs in the City
of Los Angeles including West Hollywood, the LAX area, and
Downtown Los Angeles which have exhibited the highest level
of activity, continuous increase in new commercial projects, and
growing amounts of investment injections. The heated activities at
Downtown have also spilled towards the periphery areas such as
Koreatown.
LOS ANGELES PERMITTING ENVIRONMENT
02 Hospitality // Los Angeles, CA
Source: MGAC, based on Los Angeles Open Data, Building Permits3Los Angeles Open Data
2013 2014 2015
The City has experienced several large transactions above $60 million dollars during the past five years.
• Pebblebrook Hotel Trust has completed two acquisitions within two years. In 2012, Pebblebrook Hotel Trust purchased the 258-room W Los Angeles - Westwood from Starwood for $125 million, approximately $485,000 per key. Then in 2014, the Trust acquired a leasehold interest in the 264-room Hotel Palomar Los Angeles-Westwood for $78.7 million, amounting to $298,000 per key, from a partnership led by Behringer Harvard Funds.
• Two significant acquisitions were made by Chinese investors
Hazens Real Estate Group acquired the 802 – room Sheraton Gateway for $96 million in 2013.
Sichuan Xinglida Group acquired the LAX Marriott for $160 million. It is worth noting that the LAX Marriott is the second acquisition made by Sichuan Xinglida Group, only one year after it acquired Torrance Marriott South Bay hotel in 2013.
• In August of 2015, the Ace Hotel at Downtown Los Angeles was sold for $103 million, over nine times its 2011 purchase price.
• In Jan 2016, an affiliate of Sunrider International purchased the SLS Beverly Hills from SBE Entertainment Group at a price of $178 million, culminating hospitality transactions till date.
A timeline of these significant transactions and their transaction amounts are mapped in the chart on the next page.
SIGNIFICANT RECENT TRANSACTIONS
03 Hospitality // Los Angeles, CA
Source: MGAC, based on data from Lodging Development Group
0M
20M
40M
60M
80M
100M
120M
140M
160M
180M
Hotel Palomar Los Angeles - WestwoodPebblebrook Hotel Trust
SLS at Beverly Hills, Luxury Collec onSunworld Dynasty US Holdings LLC
Ace Hotel Downtown Los AngelesChesapeake Lodging TrustSheraton Gateway Los Angeles
Hazens Real Estate Group
Los Angeles Airport MarrioSichuan Xinglida Group
W Los Angeles - WestwoodPebblebrook Hotel Trust
Transaction Date
Am
oun
t
2012 2013 2015 2014 2016
Tourism and related spending are directly correlated to lodging
performance. According to Los Angeles Tourism & Convention
Board, Los Angeles County welcomed 44.2 million people, a 4.8%
increase over 2013. Visitor spending amounted to a record $19.6
billion, a 6.8% increase from the previous year4. The following
table summarizes the number of overnight visitors to Los Angeles
County and their direct spending between 2004 and 2014. Los
Angeles tourism has recovered from the recession and showed
five consecutive years of increase in overnight visitation and direct
spending.
TOURISM AND SPENDING
03 Hospitality // Los Angeles, CA
4"The Downtown Los Angeles Renaissance – Economic Impacts and Trends," Beacon Economics, 2015, https://www.downtownla.com/images/re-ports/2015_09_03_-_Downtown_Renaissance.pdf
Los Angeles County
Year Overnight Visitation (Millions)
Percent Change
Direct Spend-ing (Billions)
Percent Change
2004 24.3 - 12.3 -
2005 25 2.90% 13.4 8.90%
2006 25.4 1.60% 14 4.50%
2007 25.9 2.00% 14.6 4.30%
2008 25.7 -0.80% 14.2 -2.70%
2009 23.9 -0.70% 12.2 -14.10%
2010 26.1 9.20% 13.8 13.10%
2011 27 3.40% 15.5 12.30%
2012 27.9 3.30% 16.6 7.10%
2013 28.5 2.20% 17.5 5.40%
2014 29.5 3.50% 18.7 6.90%
Source: CIC Research, Los Angeles Tourism & Convention Board
OVERNIGHT VISITOR VOLUMES AND EXPENDITURE
5"The Downtown Los Angeles Renaissance – Economic Impacts and Trends," Beacon Economics, 2015, https://www.downtownla.com/images/re-ports/2015_09_03_-_Downtown_Renaissance.pdf6“In Focus: Downtown Los Angeles Hotel Market,” HVS Global Hospitality Services, 2015, http://www.hvs.com/article/7352/in-focus-downtown-los-ange-les-hotel-market/
Undoubtedly, Downtown Los Angeles is an attraction for real estate
developers. By the end of 2015, Downtown Los Angeles accounted
for 1.2% of the land in the City of Los Angeles, but 5.3% of net total
assessed property value. Since the Downtown LA Renaissance
started in 1999, the amount of economic activity generated from
completed and planned construction has reached $29.1 billion
dollars5.
EXISTING HOTEL INVENTORY According to HVS surveys, Downtown Los Angeles enjoyed five
consecutive years of RevPAR increases6. The City’s hotel occupancy
rate hit 79% in 2014.
Downtown Los Angeles is currently the site of 13 major hotels,
including Westin Bonaventure, JW Marriott L.A. Live, and Millennium
Biltmore. Collectively, these hotels jointly provide 6568 rooms.
Demand for hotel supply is high. President and CEO of the Los
Angeles Tourism and Convention Board, Ernest Wooden, said that
“Demand is exceeding the supply of hotel rooms that we have right
now.” Wooden noted that the City and his office are aggressively
courting investors for new hotel projects, especially near the
convention center in Downtown, where the need is greatest. Over
the next several years, the City hopes to attract 4,000 additional
hotel rooms to overcome the lodging shortage.
DOWNTOWN LOS ANGELES
04 Hospitality // Los Angeles, CA
Source: Smith Travel Research
Hotel Number of Rooms
Westin Bonaventure 1358
JW Marriott Los Angeles L.A. LIVE 878
Millennium Biltmore 683
Sheraton Downtown 496
The LA Hotel Downtown 469
Omni Hotel Los Angeles 453
Double Tree by Hilton 434
Hotel Figeueroa 278
Residence Inn Los Angeles L.A. LIVE 219
The Standard Downtown LA 207
Hilton Checkers 193
Ace Hotel Downtown Los Angeles 182
Luxe City Center Hotel 175
Courtyard Los Angeles L.A. LIVE 174
Miyako Hotel 174
Ritz-Carlton Los Angeles 123
Los Angeles Athletic Club Hotel 72
Major Hotel Supply in DTLA 6568
NEW DEVELOPMENTS (PIPELINES)Thirteen hotel projects are in the pipeline (under construction or planning), with an additional 4,339
rooms under way. The following charts outline these projects and their geographic locations.
Downtown Los Angeles has been a hot spot for Asian capital investors. Some of the biggest projects in
pipeline include the InterContinental Wilshire Grand by Korean Air, Hotel Indigo at Metropolis by Chinese
real estate developer Greenland, the Oceanwide Plaza by Beijing-based developer Beijing Oceanwide,
and the W Hotel by Chinese developer Shenzhen Hazens Real Estate Group.
DOWNTOWN LOS ANGELES
04 Hospitality // Los Angeles, CA
Hotel Status Number of Rooms
InterContinental Wilshire Grand In Construction 900
JW Marriott Expansion Planning 755
Hotel Indigo Los Angeles at Metropolis In Construction 350
W Los Angeles Downtown Planning 250
NoMad Hotel Los Angeles In Construction 250
Freehand Hostel - Commercial Exchange In Construction 200
Esplendor Hotel / Trinity Auditorium In Construction 183
Oceanwide Plaza Hotel In Construction 183
Lizard In Los Angeles Planning Planning 176
Hoxton Hotel Planning Planning 150
Proper Hotel Case Building Planning 148
Total Pipeline 4339
InterContinental Wilshire Grand
Hotel Indigo Los Angeles at Metropolis
Esplendor Hotel / Trinity Auditorium
W Los Angeles Downtown
Proper Hotel Case Building
Oceanwide Plaza Hotel
JW Marriott
Hoxton Hotel
NoMad Hotel Los Angeles
Lizard In Los Angeles
Freehand Hostel - Commercial Exchange
Source: MGAC, based on data from Lodging Development Group
SIGNATURE PROJECTS
04 Hospitality // Los Angeles, CA
INTERCONTINENTAL WILSHIRE GRANDThe 900 room, 73 story hotel will soon be the tallest building in
the west, set to open in 2017. The owner and developer of the $1.1
billion dollar project is Korean Air. The 1,100-foot tall structure will
have four-star hotel rooms on the upper floors of the edifice, above
400,000 square feet of office space. The project will also include
stores, restaurants, and amenities. Upon completion, the hotel will
be the largest InterContinental in the Americas, and the first hotel on
the West Coast to have a “sky lobby”.
Architect: AC Martin
Contractor: Turner Construction
Project Management: affiliated Martin Project Management
Construction Start: Feb 2013
Construction End: 2017
W HOTELThe W Hotel is coming to downtown Los Angeles as part of a $700
million mixed-use, tower project being planned across from Staples
Center by Chinese developers Shenzhen Hazens Real Estate Group.
The 250 room W Los Angeles Downtown, part of the Starwood
family of hotels, will replace the existing Luxe Hotel, set to open in
2019.
Architect: Gensler
Construction Start: 2017
Construction End: 2019
AC Martin
Gensler
HOTEL INDIGO AT METROPOLIS350 room Hotel Indigo is part of the more than $1 billion Metropolis
development in downtown Los Angeles by Greenland USA, the
American division of Greenland Group, one of China’s largest real
estate developers. The 18 story Hotel Indigo Downtown Los Angeles
is intended to serve growing hotel demand in the blocks near the
Los Angeles Convention Center and Staples Center.
Architect: Gensler
Contractor: Webcor Builders
Construction Start: Jul 2014
Construction End: End of 2016
OCEANWIDE PLAZADeveloped by China’s Oceanwide Real Estate Group, the project will
be highlighted by of a trio of skyline-altering towers featuring 504
condominiums and a 183 key luxury hotel. “We feel that Downtown
L.A. has become the most vibrant area of Los Angeles, and we look
forward to helping accelerate its growth and adding to its renewed
vitality,” said Thomas Feng, CEO of Tohigh Construction Investment,
Oceanwide’s local subsidiary.
Architect: RTKL
Contractor: LendLease
Construction Start: March 2015
Construction End: June 2018
RTKL
Gensler
The following table shows the combined lodging performance of major downtown hotels that have
average daily rates above $130.00. From 2010 to 2014, the occupancy rate saw a steady increase.
According to the PKF forecast, occupancy rates for major downtown hotels will reach 77.7% in 2016, with
average daily rates of $216.79 and revenue per available room (RevPAR) of $168.42.
LODGING PERFORMANCE
04 Hospitality // Los Angeles, CA
Historical Market Performance of the Competitive Supply
Year Annual Supply Percent change
Occupied Rooms
Percent Change
2010 1,956,035 - 1,260,9988 -
2011 2,290,375 17.10% 1,540,007 22.10%
2012 2,014,800 -12% 1,500,330 -2.60%
2013 2,014,800 0 1,532,402 2.10%
2014 2,117,365 5.10% 1,610,934 5.10%
2015E 2,218,105 4.80% 1,706,132 5.90%
2016F 2,229,055 0.50% 1,731,724 1.50%
CAAG 2.20% 5.4%
Source: PKF Consulting USA and CBRE Hotels
Historical Market Performance of the Competitive Supply
Market Occupancy
Average Daily Rate
Percent Change
RevPAR ($)
Percent Change
64.5% 132.95 - 85.71 -
67.20% 152.43 14.7% 102.49 19.6%
74.50% 170.53 11.9% 126.98 23.9%
76.10% 178.44 4.6% 135.71 6.9%
76.10% 192.93 8.1% 146.78 8.2%
76.90% 204.52 6.0% 157.31 7.2%
77.70% 216.79 6.0% 168.42 7.1%
8.5% 11.9%
LAND PRICESThe heated activities in Los Angeles also create challenges for
developers who seek to enter the market. High construction volume
drives up land and labor costs. Competition from Airbnb and
other vacation rental businesses such as VRBO encroaches on the
hospitality market.
In examining the land prices published by Lincoln Institute of
Land Policy, the dataset below captures the average land price for
single-family owner-occupied housing units for 46 of the largest
metropolitan areas in the United States. The chart on the next page
illustrates a horizontal comparison of land prices across the 46
metropolitan areas as of the 3rd quarter of 2015. The City of Los
Angeles has the 5th highest land prices.
CHALLENGES
05 Hospitality // Los Angeles, CA
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Source: MGAC, based on data from Lincoln Institute of Land Policy and U.S. Bureau of Labor Statistics
05 Hospitality // Los Angeles, CA
Note: Historical land prices are adjusted to inflation using June 2015 urban CPI as the base. Source: MGAC, based on data from Lincoln Institute of Land Policy and U.S. Bureau of Labor Statistics
LAND PRICES (continued)The vertical axis shows the City’s land price changes from 1985
to 2015 (prices adjusted for inflation). The City of Los Angeles is
experiencing a surge in land prices after the market collapse of 2008
and 2009.
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CHALLENGES
05 Hospitality // Los Angeles, CA
LABOR COSTSLabor costs are another important aspect for evaluation in the construction industry. According to data
from the Bureau of Labor Statistics, as of May 2015, the State of California has a median hourly wage
of $18.16 for construction laborers, ranking as the 13th state with the highest construction laborer cost.
Among major West Coast metropolitan areas, construction labor costs for the City of Los Angeles lies in
the middle, with a median hourly wage of $18.36, as opposed to $23.82 in San Francisco.
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CHALLENGES
7“Study: Airbnb poses threat to hotel industry,”USA Today, 2 February 2016, http://www.usatoday.com/story/travel/ho-tels/2016/02/02/airbnb-hotel-industry-threat-index/79651502/.8“The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry,” Georgios Zervas, Davide Proserpio & John W. Byers, http://people.bu.edu/zg/publications/airbnb.pdf, 27 January 2016.9“How Airbnb Is Surging in Downtown,” LADT News, http://www.ladowntownnews.com/news/how-airbnb-is-surging-in-downtown/article_d25adf98-ecfa-11e4-ae61-6b1d2584def4.html, 28 April 2015.10“At L.A. City Hall, it's the visionary vs. the lawmakers,” Los Angeles Times, http://www.latimes.com/local/california/la-me-adv-shar-ing-economy-20150818-story.html, 21 April 2016.
05 Hospitality // Los Angeles, CA
COMPETITIONWith the rising popularity of the sharing economy, Airbnb, as a lodging alternative, is eating into the
hospitality market. However, its impact is hard to estimate. Controversy revolves around whether
Airbnb will evolve into a viable mainstream option, or a position as a niche market. According to a new
study by CBRE Hotels’ Americas Research, travelers spent $2.4 billion on Airbnb lodging from October
2014 to September 2015. Although it only accounts for 1.7% of the $141 billion generated by hotels,
it’s a significant jump from the same time period the previous year7. A recent empirical study done by
Boston University estimating the impact of Airbnb on the hotel industry in Texas found that the sharing
economy is paving way to acquiring market shares from incumbents. The impact is non-uniform - lower-
priced hotels and hotels not catering to business travelers are mostly impacted. Worth noting, those
hotels affected responded to the competition by lowering prices8.
According to PKF Consulting, one concern for the hospitality industry is that Airbnb and other vacation
rental businesses are operating like hotels, without paying any relevant taxes or fees9. Policymakers
in Los Angeles and other major U.S. cities have begun discussing how to regulate the vacation rental
market. Los Angeles Mayor Eric Garcetti, in his State of the City address in the Spring 2015, said that the
City would soon forge a deal with Airbnb to collect tourist taxes from those who book rooms through
Airbnb. However, a panel of city council members decided to hold off on the plan until they came up
with a way to regulate online platforms that connect travelers with hosts10.
CHALLENGES
mgac.com
DERMOT RYANManaging Director, Hospitality202.942.3921dryan@mgac.com
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