Los Angeles Business Journal
March 3rd, 2014
The Beverly Hills hotel market, which boasts some of the highest room rates in the region but has not seen a new property built in nearly six years, is starting to heat up.
In what one city official conceded was an unusual overture, Pacific Palisades developer Sonnenblick Development has submitted an unsolicited proposal to build a 124-room luxury Auberge Resorts hotel on a 1.4 acre city-owned property at 9268 Third St.
The hotel, right in the backyard of another luxury hotel, L’Ermitage Beverly Hills, would be built on land leased from the city. The parcel now houses a small office building that has been the home of Lakeshore Entertainment since 2005.
In response to the proposal, the City Council directed staff to hold an informal public meeting last month to gauge public interest and advise the council on next steps.
While unsolicited proposals are not common, David Lightner, deputy city manager, said Beverly Hills had received expressions of interest recently for other city-owned properties, including a 5-acre site nearby on Foothill Road between Third and Alder streets.
“These proposals are not frequent,” Lightner said. “During the recession years, it was fairly unlikely. As the city emerged from recession starting from 2012, developers started looking at the (Lakeshore) site.”
Robert Sonnenblick, principal of the development firm, said in an email to the Business Journal that he was interested in the Lakeshore site because its quiet neighborhood can attract a high-end clientele, pointing to L’Ermitage’s success. He approached the city because it could give him a better deal than other privately owned sites in Beverly Hills. Land is scarce and difficult to find in the city.
“First, we really like the hotel market in Beverly Hills. It’s really strong and it has a great history,” he wrote. “Second, all of the other sites are being bid up to crazy prices by condo developers.”
That has residents wondering if the city is getting a good deal if it were to move forward with the hotel.
Marilyn Gallup, vice president of community group Beverly Hills Municipal League, said the city needs to determine a true value for the site before showing interest in projects like this.
“Looking at the renderings, it looked very nice. I’m not for it or against it,” Gallup said of the proposal. “First you have to put value on the land to know whether or not the city would be getting a good return. The city needs to decide what they want to do with the properties before you start looking at individual projects.”
That, said Lightner, is exactly what the city is doing.
“Is this the highest and best economic generator for the city? Are there other municipal functions? Are there other functions anticipated?” he asked. “That’s why the City Council said, ‘Let’s go talk to people and figure it out.’”
A recent report by PKF Consulting USA estimated that Beverly Hills had an average room rate of $414 and market occupancy rate of 77.3 percent last year.
Sonnenblick said a hotel on the site could generate as much as $2.5 million a year in transient occupancy taxes in addition to its payments on the ground lease.
Lightner said revenue generated by a hotel could be significant, but the city was still researching potential returns.
The last hotel to be built in Beverly Hills was the Montage, at 225 N. Canon Drive, which bowed in late 2008, and the prospect of another hotel in the city, whether an Auberge or another operator, remains preliminary. The Lakeshore site, just north of Burton Way and about four blocks west of the Four Seasons Hotel on Doheny Drive, would need to be rezoned to accommodate a hotel. Lightner said the property is zoned for parking, institutions and parks; rezoning the property would be a lengthy process requiring further studies and examinations of the site.
Lakeshore has a lease that runs for another year with an option for a five-year renewal. Lightner said the city could end that lease if the site were to be redeveloped.
Sonnenblick is not the only one to express interest in redeveloping the site as a hotel. Lightner said the owners of L’Ermitage, which fronts on Burton and backs on the Lakeshore site, has also expressed interest. A spokeswoman for L’Ermitage declined to comment.
Alan X. Reay of Irvine hospitality consultancy Atlas Hospitality Group said there is more than enough room for Beverly Hills to take on another hotel. He said the West L.A.-Beverly Hills hotel market is one of the nation’s best, second only to Manhattan.
“The L’Ermitage is 39 years old and it’s a nice building,” Reay said. “But with this proposal, you have this new product with a Beverly Hills address. There’s so much demand right now, the city could easily absorb a 124-room hotel. Ninety percent of the cities we deal with love the (transient occupancy taxes). It drives jobs and hotels.”