Jerry Morrison isn't the kind of guy to say, “I told you so.”
But he told them so.
When the Escondido City Council opened negotiations in 2006 with developer C.W. Clark to build a (then-) $58 million, 197-room Marriott in the city core, Morrison—a La Jolla-based independent hotel analyst—warned the council that it was making a mistake. Escondido, he said, was a “secondary” hospitality market—great for motels, but who in their right mind would pay top dollar for a hotel room there?
But city officials pressed on, lured by rosy internal estimates of tax revenue from the hotel (plus the 127 condos Clark also said it would build) in excess of $1 million annually. To land this fish, the council in March 2006 promised to spend an estimated $13 million on subsidies and project-related infrastructure.
The call of those precious tax dollars was so great that it held Escondido officials in thrall even as costs kept rising and even when Clark last year missed a city-imposed deadline to secure financing. Finally, when the developer blew a second funding deadline Jan. 1, the city pulled the plug. The council voted Jan. 7 to end its (by then) $19 million commitment to the (by then) $67 million project. No Marriott tax dollars for Escondido.
But rather than say, “I told you so,” Morrison suggests Escondido's Marriott misadventure provides a learning opportunity. The lesson: You can't build your way out of a slumping local economy by building hotels.
“What was it [Bill] Clinton said when he was running for president? ‘It's the economy, stupid,'” the analyst said in a telephone interview. “The hotel industry doesn't lead—it follows the economy. What happens is the hotel industry typically starts to soften before the rest of the economy feels it, and it typically takes longer to return.”
Escondido isn't the only city feeling no love from Marriott right now. In August, Marriott Corp., citing uncertainty in the financial markets, dropped plans to build a 1,929-room hotel in San Diego's Ballpark Village, adjacent to Petco Park. Morrison sees the two waylaid hotel deals as a warning both to developers thinking about building a hotel and those whose projects are in the pipeline—such as the newly minted Sè San Diego.
“Across the country, there are dozens, maybe hundreds of hotel projects that have stalled,” he says. “You just don't want to start a hotel right now. If you haven't got financing yet, you're not going to get it. I don't think any bank or other large lender is going to lend any money for a hotel—it's too high-risk.
“But if your hotel is already in the pipeline, then you're committed—you're stuck,” he says. “If you want to pick just the worst time to open up, the Sè San Diego did. It's not their fault—they started planning this thing years ago—but it's going to be tough for them. I'm sure they'll hang on, but it depends on how well capitalized they are and whether their assumptions were correct at the start. If they're assuming they're going to get $200 a night for a room, that's an example of a bad assumption.”
“While it's not ideal timing, we have been planning on introducing our hotel for a long time,” says Tohnia Miller, director of sales and marketing for the Sè San Diego. “We're certainly not alone in Downtown in having rates at $200—for upper-tier hotels, that's the primary range. But we are sensitive to the time of the year—January and February are typically slower months—and are offering great introductory rates and value packaging. For example, we're offering a $279 introductory rate that includes valet parking, a complimentary breakfast for two and a $100-a-day spa credit. That's a screaming deal that we're offering through February.”