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Smaller Beach Cities From Coast to Coast Ride a Development Surge

Vacation Towns Awash in Spillover Tourists From Major Resorts Now Reel in Investors
August 20, 2018


The 12-room luxury hotel known as Vespera on Ocean (pictured) in Central California’s Pismo Beach is one of a number of beach resorts being built in smaller coastal communities across the U.S. as visitors seek more affordable getaways. Image courtesy of Nexus Development.


It has been ages since hotels have been built in Pismo Beach on California’s Central Coast. The sleepy beach town about an hour north of Santa Barbara looks like a nostalgic postcard, with coastal roads lined with aging mom-and-pop shops as surfboard-toting families stroll the breezy promenade. It's also ground zero in a little-noticed nationwide development boom.

In the past year, a new luxury hotel opened and another broke ground as existing hotels undergo renovations into high-end boutiques. Hotel occupancy is climbing and hoteliers are raising rates as more visitors pour in from inland as well as the northern and southern coasts.

"When I saw how well that market did, my jaw dropped," said Cara Leonard, senior vice president of real estate brokerage CBRE Group Inc.’s hotels division in Los Angeles.

That’s also the case with once less-popular beach markets from the West Coast to Fort Lauderdale in Florida and Asbury Park in New Jersey. As prime beach resort markets like Santa Monica and Miami hit peak pricing in a surging economy, spillover markets are booming with unprecedented numbers of visitors looking for more affordable getaways. It’s leading to renewed investment and development in these cities.

Top hotels in prime beach cities have soaring prices, topping $700 a night in some cases, as they record historically high occupancies.

"For the average person, you can’t afford to stay in Santa Monica or Laguna Beach" in California, Leonard said. "They are looking for other beach-front locations where you don’t have to spend $1,400 to have a weekend on the beach."

The beachside hotel rooms in Los Angeles, for example, grew to 85.5 occupancy with average daily rate of $311 for the first six months of this year, the city reported. Meanwhile, a three-hour drive north on the coast, Pismo Beach hotels had an average daily rate of $169, a 5 percent increase over the previous year but still a significant discount to Los Angeles, according to city figures.

The affordable rates aren’t the only attractive component of the quieter markets either.

"There are a lot of guests that don’t want to deal with Miami and the traffic there," said John Wijtenburg, vice president of Colliers International’s hotel group.

The growing demand has hoteliers looking to build in the areas they once overlooked. There’s notable resort development all along the U.S. West and East Coasts as demand grows. A Four Seasons hotel is under construction in Fort Lauderdale while a Marriott Autograph Collection hotel is underway in Pismo Beach.

Brian Cheripka, senior vice president of real estate investor iStar, which is developing a boutique hotel and condo complex in Asbury Park, said "we’ve seen a resurgence of people coming to the beach ...people coming back to this community, but we really saw a lack of places to stay."

Of course, this growth phenomenon is driven by a strong economy, so there’s no guarantee the boom will last. In the last recession, small towns relying on discretionary income like tourism took a disproportionately large economic hit because they lack business diversity. Even so, tourism officials hope the added development will lessen that blow by letting the towns bounce back from the eventual economic downturn.

A Renaissance Market

While Pismo Beach in San Luis Obispo County hasn’t seen the kind of improvements and development popular beaches in Northern and Southern California have experienced in this latest upswing of economic growth. that’s starting to change.

Sandy Wirick, director of sales for Martin Resorts that owns a number of hotels in Pismo Beach and across the Central Coast, said her company saw a strengthening hospitality market and decided to reinvest in some of its older Pismo Beach properties that had been previously flagged by national hotel chain Best Western.

She said because of the demand, her company could increase its daily rates and reinvest in two of its hotels - the Inn at the Cove and the Shore Cliff Hotel - to turn them into boutique high-end properties.

"The area has been seeing a renaissance as far as the quality of lodging," she said.

Outside investors are building new hotels on the coastline of Pismo Beach for the first time in years.

Last year, developer Somera Capital Management and hotel management Pacifica Hotels opened $40 million luxury hotel called Inn at the Pier where a former parking lot once stood. The hotel added 104 rooms to the market and opened the area’s first top-tier luxury brand.

Now, developer Nexus Development Corp., is underway on the construction of the second new hotel in Pismo Beach in years. Known as the Vespera on Ocean, the project will add 128 rooms and a pool on the coast. The hotel is part of Marriott International’s Autograph Collection, which bring independently owned hotels under the Marriott umbrella.

Cory Adler, president of Nexus, said the acre and a half of land on the ocean was too compelling to turn down.

"It’s hard to find an opportunity," he said. "Pismo is truly one of the last California beach towns. The downtown is a cool sleepy California beach town and it could still use some improvements to come in. But the market has been good."

Pismo officials are encouraging the tourism. The city has a million dollar ad campaign budget and is modernizing much of the downtown. It just completed an $8.5 million renovation of the pier as well as updates to its public promenades and public parking.

In all, the hotel market’s revenue per available room, a key hotel indicator that is a multiple of a hotel's average daily room rate and its occupancy rate, is up 6.6 percent to $114.43 for the first six months of this year over last year, according to city figures.

"We are on a pretty good start here," said Gordon Jackson, executive director of Pismo Beach’s Convention and Visitors Bureau. "We are looking again to do even better next year."

The city’s transit occupancy tax, which is 10 percent charge to a visitor at a hotel, garnered more than $10 million from July of last year to June of this year, Jackson said.


While that’s been a boon for the city, for visitors it’s still a steal compared to larger markets.


"In L.A. that (transit occupancy tax) fee is 17 percent, not to mention the resort fee and $40 a night to park," he said. "When you get up here, they have free parking and the resort fee is nominal. And you might get a free bike rental too."


There was a short time you could get cheap rooms in luxury beachside hotels in major cities during the downturn but now they are holding their rates, according to Leonard.

"They cannot lower their rate or it goes completely upside down for them," she said, noting that luxury hotels pay hefty staff salaries to accommodate visitors. "Having that person on-site is going to cost me more than that $160 a night. They are better off not renting it at a higher price than they are renting it at a lower price."


She said even when Los Angeles’ beachside hotels were suffering during the recent economic downturn, they weren’t lowering rates to rock-bottom prices. In cities like Las Vegas, hoteliers expect to offset the loss on a low nightly rate with money visitors spend in the attached casinos. There’s not an equivalent money-maker for beach resorts.


Building Boom


In South Florida, plenty of visitors want to steer clear of Miami, and that’s creating a steady demand for smaller area markets such as Fort Lauderdale and Hollywood in neighboring Broward County, said Wijtenburg.

"These markets have shown that they can create their own demand," Wijtenburg said. "They’re not relying on the primary market to fill rooms as they were in the previous cycle."


Figures from the Greater Fort Lauderdale Convention & Visitors Bureau show hotel occupancy in June was 75.9 percent, the highest in any June since 2010. Revenue per available room was $92.13, the highest of any June in the past three years, the tourism agency said.


"I should knock wood before I say this, but it’s been a great first half of the year," said Stacy Ritter, the group's president.


Upscale resort properties such as the Conrad Fort Lauderdale Beach and the Ritz-Carlton Fort Lauderdale are consistently busy, according to Ritter.


The Four Seasons started construction earlier this year on a hotel and condominium at 505 N. Fort Lauderdale Beach Blvd.


"We’ve seen a lot of developers that have never built in Fort Lauderdale move north (from Miami)," Ritter added. "The real estate is less expensive."


In Hollywood - south of Fort Lauderdale - the 349-room Margaritaville Hollywood Beach Resort opened in 2015. The property, with a theme based on singer Jimmy Buffett, has restaurants, bars, shops and a spa.


Denver-based KSL Capital Partners bought the resort for $190 million, or more than $544,000 a room, from Starwood Capital Group and The Lojeta Group in April, according to CoStar data. At the time, Hollywood Mayor Josh Levy told CoStar News the project succeeded in improving the beach and bringing in out-of-town visitors to the city.


Colliers’ Wijtenburg said Margaritaville and other properties offering a lifestyle are doing well.


"Guests want something that they can’t experience at home," he said.


Northeast Demand


The same is true for markets even further north.

While gambling mecca Atlantic City has grabbed the headlines in terms of hotel openings at the Jersey Shore this summer, smaller and less flashy venues on the state’s beachfront have new hospitality development as well. Real estate firms are bringing the kind of hotels - in terms of design, restaurants, and amenities - that can be found in hip city neighborhoods to the Garden State’s beaches, which now have an abundance of older, family-oriented hospitality resorts, tiki bars included.

Asbury Park, enjoying an economic revival that’s capitalizing on the seaside city’s history as a music and arts mecca, next year will welcome the Asbury Ocean Club, Surfside Resort and Residences, right off the boardwalk. Real estate investor iStar is the developer finishing up construction on the 17-story, 500,000-square-foot tower that will include a 54-room boutique hotel, 22,000-square-feet of ground-floor retail and 130 luxury condominiums.

The New York City-based developer purchased 35 acres in the city and is spending more than $300 million on projects, with a significant amount of that capital going toward the Asbury Ocean Club, said iStar's Cheripka. The company has another hotel in the city, a former Salvation Army building that it renovated and opened in 2016 as the 110-room The Asbury.

Asbury Park -- home to the Stone Pony, a venue that New Jersey native Bruce Springsteen made famous and still plays -- is now attracting not only local day-trippers but tourists from around the country and the world, according to Cheripka.

The Ocean Club’s Hotel, with its urban-boutique vibe, will be operated by David Bowd - whose resume includes overseeing the management of Chateau Marmont in Hollywood and the Mercer in New York. Dowd is also a partner in and operator of The Asbury.

In Long Branch, NJ, Kushner Cos., the real estate firm founded by the family of Jared Kushner, President Donald Trump’s adviser and son-in-law, is adding a hotel to its Pier Village mixed-use development. The firm describes the Pier Village Hotel as a property "that will satisfy the area’s shortage of luxury lodging options."


Farther south "down the shore," as New Jersey natives say, in Stone Harbor, the Reeds at Shelter Haven, a 37-room luxury boutique hotel, is expanding to accommodate more year-round business. It is constructing a building, Spa Side, that will house 22 more guest rooms and a two-story luxury spa, Salt Spa.


Owned by Refined Hospitality, Reeds’s new hotel accommodations are slated to open this fall or winter, with the spa set to debut in winter 2019. The expansion comes in response to feedback from guests over the past five years and aims to encourage guests to come outside of the summertime, according to Managing Director Ron Gorodesky.


"The demand for accommodations at The Reeds has made it necessary to expand our footprint," he said in a statement. "Specifically, our meetings and wedding business is booming and we wanted to be able to accommodate more of these guests under our own roof while providing them with luxury spa and fitness services. We are committed to providing more year-around amenities for our guests and local residents to enjoy."


On Long Beach Island, Exit 63 of the Garden State Parkway, Chris Vernon is in the process of building a 105-room hotel at the former site of The Stateroom, a location at the island’s entrance at the foot of the Route 72 ramp in Ship Bottom, NJ. Hotel LBI, scheduled to open in 2020, will have views of the island’s bay and the ocean from its rooftop deck.


Hotel LBI and the Reeds at Shelter Haven - one with its large banquet facilities and the other with a fancy spa -- appear to be addressing the issue that hospitality facilities at the Jersey Shore have always faced, namely attracting business in the off-season. That challenge has kept some of the national chains, like Marriott, away, said Marilou Halvorsen, president of the New Jersey Restaurant & Hospitality Association.

"The problem has always been that it’s so seasonal - It’s hard to get year-round business," she said. "And if you’re not open year-round, you can’t hire year-round employment so it becomes challenging ... So you either have to have a real small hotel or you kind of have to be a destination."


Many of New Jersey's shore towns are packed with houses that visitors rent from their owners during the summer, rather than go to a hotel. And like the rest of the Garden State, there is little vacant land left for hoteliers to build on at the coast.


"A lot of it (the shorefront) is already existing properties, especially in our area, where you have so much residential," said Lori Pepenella, chief executive of the Southern Ocean County Chamber of Commerce, which includes Long Beach Island. "Even when hotels went up for sale in the past, they were turned into condominiums, and that has been the trend. And now we’re starting to see reinvestment in hotels. The Drifting Sands (in Ship Bottom) was just purchased last year. There’s been discussion that there’s other hotels that might be renovated or bought out, but those haven’t actually finalized."

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