Colony Inn is going to stay a hotel

The owners of the Colony Inn Hotel at the north end of Atascadero have decided to remodel the existing building instead of converting it to a residential care center.

Hotel owner J.P. Patel petitioned the city in February to allow the conversion. The City Council conceded but expressed concerns about the loss of tax revenue from the 75-room hotel at 3600 El Camino Real.

Patel originally expressed plans to build a new hotel at the south end of the city but put that project on hold because of the recession.

Instead Patel will spend $300,000 to renovate the existing hotel — with the upgrades expected to be completed in January.

“At this point, it doesn’t seem that there is enough demand in our local tourism economy to justify an additional hotel,” said Karen Palmer, director of sales. “It makes sense to renovate the Colony Inn and keep it operating as a hotel for the time being until the economy picks up a little bit.”

The renovation includes new color themes in all the rooms with accent walls, new beds with new bedding packages and flat-panel televisions. The outside of the building will also be painted, and new landscaping will be installed.

Palmer said Patel still plans to build a Marriott hotel at the south end of town but does not yet know when.

The city receives an estimated $154,000 in tax revenue a year from its hotels — and Colony Inn is one of the largest in the city.

“We are very happy that the owners have decided to continue running the Colony Inn as a hotel,” said Warren Frace, city community development director. “Hotels are one of the better revenue sources for the city and a growing industry in the North County.”

The conversion to a residential care center would have required a change in Atascadero’s land-use law to allow residences instead of commercial retail.

Frace said there remains a need for assisted living facilities in the community but that there is a surplus of areas in the city where such a facility could be built.

“We would like to see more hotels,” Frace said, adding that economic development is one of the council’s priorities. “But keeping what we have is first order in business.”

Patel opened two new hotels in the past six months — the Fairfield Inn and Suites and the Candlewood Inn, both in Santa Maria.

“This company is still continuing to grow,” Palmer said. “We just need to make sure that the market we are choosing makes sense.”

Reach AnnMarie Cornejo at 781-7939.