New Hotel Construction is Booming in L.A.

Los Angeles is seeing a surge of hotel construction. The market has more hotel projects in the construction pipeline than any other market in the US. The market’s strong economy, job growth, international travel and corporate expansion are helping to drive the activity. In addition, the market is relatively undersupplied for hotel rooms. As a result, the market is leading the nation in hotel construction.

“There is not just one factor that is influencing the strong hospitality construction pipeline in LA. From strong local job growth, significant corporate expansion/relocation, yield hungry international investors, specifically in Europe, China and Japan, to lenders easing underwriting standards have all fueled the robust hotel development pipeline in Los Angeles,” Malcolm Davies, principal and managing director at George Smith Partners, tells GlobeSt.com. “During the 2007-08 recession, development came to a screeching halt and it’s taken the last 10-12 years for hotel development to catch up.”

Davies is an expert in hotel financing—recently securing $460 million non-recourse senior construction financing for the ground-up development of a 35-story mixed-use high-rise that will be anchored by a Ritz Carlton Hotel in Portland. Lenders are showing general caution for hotel construction. “It’s not just about the location or the flag, but also about who is operating the hotel and what the greater macro economy is doing,” he says. “Figuring out whether or not there is a supply glut (or will be in the near future) in the specific market is also important—the market needs to be able to quickly absorb the new supply.”