Sacramento’s once-struggling hotel market is on a comeback, with two major new projects about to launch this spring.
At Sacramento International Airport, officials last week signed a deal for a $24 million airport hotel, with plans to be submitted to county officials in June. The splashier debut comes in March or April, when a partnership involving the Kings is expected to start construction of a $200 million-plus high-rise hotel adjacent to the downtown NBA arena.
Kings officials say they want to start construction now so they can open the hotel simultaneously with the new arena in fall 2016. The 250-room hotel will have entrances on both J Street and on the arena’s K Street plaza.
The timing seems fortuitous for the Kings. Hotel industry data show Sacramento hotel occupancy and room rates are on the rise after several bleak years during the recent recession. Likewise, Sacramento International Airport has seen a steady uptick in passengers over the last year, an indication that the capital region is luring more business and leisure travelers.
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Hotel occupancies in the Sacramento region are now at about 62 percent, matching long-term averages, after dropping to 50 percent six years ago, according to the latest hotel analysis by PKF Hospitality Research in San Francisco, a leading industry consultant. Downtown hotels are running about 72 percent occupied, up from 55 percent in 2009.
Projections also call for a steady 6 percent increase in room rates over the next few years, PKF chief Thomas Callahan said.
“Three years from now, our sense is it will be measurably better,” Callahan said of the Sacramento hotel market.
Kings President Chris Granger said his group’s analysis shows the market is ready for a new downtown hotel, especially one connected with an arena and a surrounding entertainment district that will bring in more people from out of town.
“We think there is a need for more hotel rooms,” Granger said. “Sacramento also needs to increase its capacity at the high end to secure bigger sports events and conventions.”
Another development group, led by Presidio Companies, plans to turn the shuttered Marshall Hotel at Seventh and L streets, a half-block from the arena, into a boutique-style Hyatt Place, with 130 rooms and some condominiums.
But, despite three notable hotels in the works, the market for financing large hotels in Sacramento is still tough, city and industry experts say. Room rates here can’t match upper-end hotel properties like those found in major cities, making it challenging for developers to find construction financing.
Another major hotel, this one planned on the West Sacramento waterfront near the Tower Bridge, has been in the works for several years but has not yet penciled out.
West Sacramento Mayor Christoper Cabaldon said the new arena hotel “creates a hiccup for us in the short term, but a benefit in the long term,” because it will help build a more robust economy near the riverfront.
“I’m excited about the Kings project almost as much as ours,” he said. He said his city is not in a hurry to build its hotel. “The game has to come to us.”
PKF’s Callahan and airport hotel developer Bob Sonnenblick said Sacramento still cannot command the higher room rates that would make a five-star luxury hotel viable, either at the airport or downtown.
Sonnenblick, a Southern California developer who hopes to begin work on his Hyatt Place airport hotel in June, said he initially hoped to build two hotels at the airport, one full-service with meeting rooms, the other a mid-range venue. Studies showed the higher-service hotel would not pencil out.
The Kings and their partners, including luxury developer JMA Ventures of San Francisco, say they want to build a hotel with high-end services and amenities. They have not yet disclosed whether they’ve signed with a specific hotel company.
“Sacramento is in need of four-star hotels,” Granger said. “I think the market can support that, and that is probably where you’ll see us go with our brand.”
The hotel will be part of a 16-story, multi-use structure facing J Street to the north, between Fifth and Sixth streets. It also will have an entrance on the K Street side, opening onto a large plaza facing the arena entrance.
The hotel will occupy the first 11 floors of the building. There will be 69 apartments or condominiums on the 12th through 16th floors. The bottom two floors also will hold restaurants, retail and offices. There will be two levels of underground parking.
A city planning document says foundation work for the hotel should start in March in order to keep the adjacent arena plaza construction on track. Granger said the hotel will take about 18 months to build. But before construction begins, he said, his group must first win final city Planning Commission approval of design plans, along with City Council sign-off.
The city and the Kings development group will need to sign some sort of business agreement because of a convoluted ownership situation at the arena site. The Kings partnership group owns the land under the proposed hotel, but the city owns the “air rights” to two planned levels of underground parking. Both sides say it is too early to say what type of arrangement could be worked out, or whether the city would help in any way with project financing.
The city has helped financially with other major hotels built downtown, including the Hyatt Regency on L Street, the Sheraton and Citizen hotels on J Street, and the Embassy Suites next to the Tower Bridge.
“We will be subject to the same market dynamics and challenges as (were) other hotels,” Granger said. “We will work with the city to maximize the project.”
It remains uncertain what impact the new Kings hotel will have on existing downtown hotels, but several people say it ultimately will be positive.
Scott VandenBerg, general manager at the Hyatt Regency Sacramento, said the new hotel will be a positive. Demand for hotel rooms downtown last year finally caught up with the supply created in 2007 and 2008 when the Marriott Residence Inn Downtown on L Street and the Citizen Hotel on J Street opened.
“We have a good convention base, business travel has rebounded, and leisure travel has increased,” VandenBerg said. “I think the timing for the arena hotel opening is perfect to absorb that (room) inventory. I think it is going to be a good addition.”
PKF’s Callahan, who has done some consulting for JMA Ventures, one of the companies in the downtown arena hotel partnership, agrees.
“New supply is always troubling,” he said. But, he added, “We’ve done a detailed feasibility study, and we believe the market can support it. We don’t see it as cannibalizing the others.”
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