Hotel developers see room for growth in SLO County

The Ayres Hotel & Spa under construction on Buena Vista Drive in Paso Robles will eventually have more than 200 rooms.
The Ayres Hotel & Spa under construction on Buena Vista Drive in Paso Robles will eventually have more than 200 rooms.

Hotel development has come roaring back to San Luis Obispo County.

With the pain of the recession largely behind them, property owners and developers are teaming up with hotel operators to bring new hotels and inns to the area. While many are in the initial phases, others are already under construction or preparing to build. Even those with existing properties are sprucing them up to attract guests.

Fueling the trend is an improved economy and pent-up demand for additional rooms catering to domestic and international travelers who have discovered the county’s charm. The county has roughly 9,500 rooms, and local tourism officials and hoteliers believe there’s room for growth, particularly in the higher-end destination and luxury boutique market.

“One of the things we lack is four- and five-star properties,” said Stacie Jacob, CEO of Visit San Luis Obispo County, a tourism marketing group. “There’s a huge opportunity in that tier, and the demand is there.”

Kimberly Walker, co-owner of the Granada Hotel, said intimate, boutique offerings will give guests, even those who live in the region, more reasons to stay here. Walker opened the boutique property on Morro Street in the heart of downtown San Luis Obispo two years ago. The hotel has 17 guest rooms and suites, catering to guests who appreciate distinct design and want to be inspired by their environment. The original Hotel Granada was built in 1922 and is rumored to have been a brothel during the 1920s.

“SLO is entering a new phase of hospitality, and it’s very exciting that people want to come here and experience our lifestyle,” Walker said.

Tourism is No. 1 economic engine

As the county’s top economic driver, tourism generated about $1.3 billion in visitor spending in 2012, up 7.3 percent from the previous year. The county had an 8.5 percent average increase in transient occupancy tax, also known as hotel bed tax, for the fiscal year that ended June 30, 2013. Bed tax figures for unincorporated San Luis Obispo County and cities for the fiscal year that ended June 2014 are incomplete.

“As a region overall, tourism was one of the last industries to be hit by the economic downturn and one of the first to come out of the economic downturn,” Jacob said. “There’s now a huge investment going into tourism, with the infrastructure being hotel rooms. Definitely, the demand for the product and region is up.”

Tourism is increasing because “employment is growing, unemployment is falling and incomes are rising, and that’s making folks feel more comfortable about engaging in tourism-related activities, whether that’s taking families on trips to Avila Beach or couples going to Paso to wine taste again,” said Jordan Levine, economist and director of economic research with Beacon Economics.

Hotel occupancy was about 70 percent as of April, and at the same time, room rates increased, Levine noted. Hotel occupancy is up, and they’re making more money, and that’s motivating them to expand, he said. Moreover, banks are once again providing the financing for such large-scale projects, hoteliers and economists say.

“The banks are lending again; it’s as simple as that,” said Nipool Patel, owner of San Luis Obispo’s Comfort Inn & Suites Lamplighter and former chairman of the board for the California Lodging Industry Association. “These are projects that people wanted to do, but with the economy the way it was, the banks wouldn’t allow it. Now, the economy is getting better and demand is there.”

Projects booming in Paso Robles area

A diverse group of projects are popping up throughout the county, and the North County is leading the way.

Several hotels have been proposed or approved, including the 127-room Oxford Suites at Fourth and Pine streets, and a 280-room hotel on the north side of Highway 46 East across from Hunter Ranch. In addition, a 128-room extended stay Marriott at South Vine north of Highway 46 has been approved by the city, and plans to develop a 100- to 120-room hotel at the southeast corner of 10th and Pine streets will soon be presented to the Planning Commission.

A few wineries also are considering adding hotels. Vina Robles has plans to build an 80-room boutique hotel. Robert Hall Winery, whose founder Robert Hall saw a need for additional hotel space in wine country about four years ago, has its sights on developing an 80-room hotel with a small conference center and restaurant, said Lisa Pretty, marketing director for the winery. The hotel could be years away, however, since it’s still waiting for its property to be annexed into the city.

Some construction is already underway, including at the La Quinta Inn and Suites, which is adding 37 rooms to the existing hotel at the southeast corner of Buena Vista Drive and Experimental Station Road.

The Ayres Hotel & Spa is moving forward, with 171 rooms of the eventual 200-plus rooms under construction on Buena Vista Drive. The hotel will feature a pool, spa, vineyard and gardens, and will offer a venue for weddings and business meetings.

Doug Ayres, who is overseeing the project and has a residence in Paso Robles, said he has long seen the need for additional hotel rooms in the area and had been looking to build a hotel in Paso Robles for years.

“I love the area as a whole, and I thought it would be a great location for our product to add to our Ayres collection,” said Ayres, whose family owns and operates 20 hotels in Southern California.

However, Ayres added a word of caution.

“Things are improving on the economic side, and there is demand for more rooms,” he said. “But it’s very important not to overbuild too many rooms in one area.”

Jim Throop, the city’s director of administrative services, said there are “a lot of niches to be filled,” in terms of the type of hotel properties and sufficient market to handle the additional rooms. The city welcomes the increase in revenue from bed taxes, which is expected to increase by 10.8 percent over last year and by 13 percent next year. Throop expects such taxes to reach $5.6 million annually by 2018.

“Would it be saturated at some point probably,” he said. “But we’re not there yet.”

Hotel growth elsewhere

While many of the projects are happening in the North County, other communities are seeing their share of hotel development.

Developer Gary Grossman plans to build hotels in two communities. A 105-room hotel off Oak Park Boulevard in Pismo Beach will be part of his Village at Pacific West project; Grossman said he’s in contract with a high-end name-brand hotel that he declined to identify. In southern San Luis Obispo, a hotel and conference center is planned for the Dalidio Ranch property off Highway 101.

In the past three years, Grossman said he’s noticed that the area has become even more of an attractive tourist destination for travelers from the Central Valley, Southern California and the San Francisco Bay Area. Many of those visitors “want to come in and spend a week and want to stay in comfort and have an experience,” he said.

“We have the kind of things people want to do on vacation. People can get here in a couple of hours and they don’t need to go through security on an airplane,” Grossman said.

Copeland Properties recently chose a Northern California developer and manager of luxury hotels to operate the 78-room hotel that’s part of the Chinatown project. Piazza Hospitality Group hopes to break ground next spring.

San Luis Obispo architect George Garcia has teamed up with a Santa Barbara development group to build a 100-room hotel project at 1845 Monterey St. The project is in its initial phase, but Garcia hopes to get it approved and built in the next few years.

The Garden Street Terraces project, planned for the historic district of downtown San Luis Obispo, includes a 64-room hotel. The historic Leichter House on Monterey Street next to the Children’s Museum is slated to become an 11-room bed-and-breakfast.

Local developer Rob Rossi is excited about the possibilities for additional hotels and is working to push some hotel plans forward, including finding a group to take on the iconic Motel Inn.

“Throughout the county in the next 10 years, it would not surprise me to see a couple thousand rooms come into the marketplace,” he said. “It will enhance our ability to be a destination that complements the wine industry, but also allows us to hold meetings and group retreats that can’t be accommodated because we don’t have an adequate supply of rooms.”

More hotels means more tourists

For those who keep a close eye on the tourism industry, San Luis Obispo County is in prime position to compete for more of the tourist dollar.

Noreen Martin, CEO of Martin Resorts and a commissioner on the Visit California board, the state’s tourism marketing organization, said the county offers adventure and experiential travel “at its finest.” To accommodate those travelers, there is a diverse array of quality hotels. What’s needed, however, are full-service hotels that offer more experiences to capture new tourists and keep them coming back, she said.

“We need to expand the tourist who comes here now,” said Martin. “We need to increase international and out-of-the-area tourists to increase the pie and inform our own citizens why an increase in tourism benefits them.”

Recognizing the need to remain up-to-date, Martin Resorts last year completed renovations of the Paso Robles Inn, which now has refurbished rooms, including suites decorated with items from local wineries. Martin is also in the process of enhancing several areas of the bluffs behind Martin Resorts’ three Pismo Beach properties to improve the safety and public access to the coastline.

With San Luis Obispo’s Granada Hotel, Walker said that she and her partners put all they had into their project because they wanted to create an “experience that was uniquely SLO but desirable to people in New York, San Francisco and Paris.” She believes they have achieved that, and she’s looking forward to seeing other luxury properties open in the coming years.

“It’s not about one property competing against the other; it’s about elevating the accommodations and the hospitality we provide to travelers," she said.