Business & Real Estate

As dormant construction market stirs, Tahoe seeks to reinvent itself

It’s a long-awaited sight around here, as welcome as a big snowfall on the ski slopes ringing the lake.

Hard hats are swarming over Lake Tahoe’s “hole in the ground,” a vast construction site on Highway 50 that sat dormant for nearly five years. A $15 million shopping and dining complex has been rising from the barren concrete pit since August.

Modest in size but rich in symbolism, the development could be the first step in a larger project, a $400 million hotel and convention center that were planned for the property before the recession halted construction. The hotel complex would add momentum to an even grander concept, one that’s been kicking around for years: the wholesale reinvention of Tahoe as a tourist destination.

With Tahoe’s casinos in long-term decline, community leaders are anxious to fashion a new tourism economy built around upscale lodging, outdoor recreation and other amenities. The goal is to lure moneyed travelers from around the world, not just Northern Californians on a weekend getaway. The casinos that dominate Tahoe’s southern shoreline would recede in importance.

The massive makeover probably won’t happen overnight – not in a community where the hotel scene consists mainly of 1960s-era motels and cottages, and the construction industry often runs into conflict with environmental groups.

“We have a long way to go to catch up with Vail and Aspen and Jackson Hole,” said Chuck Scharer, president of the company that owns Edgewood Tahoe golf course, just over the state line. Scharer’s company is planning a $100 million-plus hotel lodge along the ninth fairway.

Other developments are moving ahead on the lake’s south shore. The old Royal Valhalla Lodge is about to be reborn as The Landing Resort & Spa, a European-style boutique hotel with fireplaces in every guest room. A $7 million facelift turned the Embassy Suites into the Lake Tahoe Resort Hotel.

And on the north shore, the fabled but faded Cal Neva casino hotel – the joint once owned by Frank Sinatra – is getting a multimillion-dollar overhaul aimed at restoring much of its Rat Pack glamor. The developer, Criswell Radovan of Napa, has shut the Cal Neva down but has said he hopes to reopen in December 2014, in time for what would have been Sinatra’s 99th birthday.

Whether it’s Sinatra’s old haunt or a less famous property, the song is the same: Replace the aging bungalows and motor inns with high-gloss luxury resorts worthy of Tahoe’s world-class setting.

“We have this incredible scenic lake ... but the infrastructure doesn’t match,” said Carl Ribaudo of Strategic Marketing Group, a South Lake Tahoe tourism consultancy.

Tahoe is already being reinvented to a certain extent, on its ski slopes, thanks to an avalanche of out-of-state money. Big corporations have bought up Kirkwood, Squaw Valley and other Tahoe mainstays with the idea of building high-end mega-resorts to compete with locales like Vail and Park City, Utah. A Ritz-Carlton opened at Northstar four years ago, although the original developer lost the luxury hotel to foreclosure.

Other changes are afoot, closer to the waterfront. The Tahoe Transportation District is planning a re-routing of Highway 50, diverting much of the vehicle traffic eastward while creating a pedestrian-friendly village in the core around the casinos.

‘Time to change’

But a massive makeover of Tahoe is years away; redevelopment at the lake usually comes at a glacial pace. The environmental rules are legendary. The Tahoe Regional Planning Agency, which governs development on both sides of the state line, sets limits on building height, sediment runoff and a host of other issues. The hotel business is literally a zero-sum game, in which new rooms can’t open until older ones are demolished.

TRPA adopted a more lenient general plan a year ago, giving local governments leeway to loosen standards. But the Sierra Club and Friends of the West Shore have sued to block its implementation. The case is pending in U.S. District Court in Sacramento.

The two environmental groups also have used litigation to try to block a $500 million expansion proposed for Homewood Mountain Resort. The project, near Tahoe City, would upgrade the 50-year-old resort with condos, townhouses, a hotel and skating rink. A judge in January ruled mostly in the developers’ favor, but some environmental issues remain to be resolved.

Developers say they’re committed to eco-friendly projects. They want to introduce state-of-the-art systems for controlling runoff to enhance the lake’s clarity, which has been famously declining. But some environmentalists say many of the proposed mega-projects would be too much, too soon, overwhelming the lake with a new wave of traffic and pollution.

“They should just slow down and do a few things at a time, and see if it works,” said Laurel Ames, a member of the Tahoe Area Sierra Club executive committee. “They should just do this more slowly.”

Aside from environmental concerns, she said, a surge of development could gentrify Tahoe to the exclusion of the middle class. “Tahoe belongs to all the people,” said Ames, who has lived at the south shore since 1947. “If we push all the affordable rooms out, that takes Tahoe away from a particular socioeconomic set.”

Decades ago, there was room for everyone at Tahoe. The casino showrooms boasted big names like Elvis, and gambling formed the foundation of a thriving tourism market.

Then California legalized full-fledged tribal gambling in 2000. At the lake, gambling revenue plunged from more than $380 million a year to $238 million last year, according to the Nevada Gaming Control Board. With another big tribal resort opening this month, in Sonoma County, Tahoe casino executives acknowledge that gambling’s place is diminishing.

“Gaming is an important part of our economy, always will be,” said Scharer, the Edgewood Tahoe executive whose company controls one of the south shore’s four big casinos, the Montbleu. “But it’s not going to be the economic engine it once was.”

The casinos’ troubles are felt throughout the basin. Despite a 10 percent uptick in tourism numbers this year, the lake’s economy is struggling.

A decade ago, the south shore’s hotels and motels could count on 1.6 million room-nights a year, according to the Lake Tahoe Visitors Authority. In the 12 months ending October 2012, the last year for which full-year statistics were available, the guest count was down to 1.1 million. Year-round motel occupancy in South Lake Tahoe averages 25 percent. South Lake Tahoe’s population has fallen by 10 percent since 2000.

“We need to change; it’s time to change,” said Neil Panchal, owner of the Apex Inn, a tiny motel that’s hosted visitors to South Lake Tahoe since 1958.

A ‘tough market’

The sluggish economy makes it harder to renew aging properties. In 2007, Incline Village entrepreneur Roger Wittenberg bought the Tahoe Biltmore Lodge & Casino, a 67-year-old north shore institution known for its oversized wagon-wheel sign in front. His plan: Turn the Biltmore into a luxury health-spa resort, with the casino pushed to the back of the building.

Wittenberg finally got the necessary permits last year. But he still doesn’t have the $140 million in financing. He said it’s a legacy of the 2008 financial market crash, which has made banks wary.

“There’s a fair amount of reluctance to take on loans,” he said.

Lew Feldman, an attorney who represents developers throughout the basin, said money for construction is still elusive. “The capital markets are starting to loosen, but ... it’s still a tough market here,” he said.

One of his clients is Owens Financial Group of Walnut Creek, which took over the “hole in the ground” when the previous owner lost the project in the market meltdown.

Located just south of the casino district, the six-block stretch was once a cluster of old hotels and motels. All were torn down to make room for the $400 million Chateau at Heavenly Village hotel-convention center. Now, after five years of inactivity, Owens has launched Phase 1 of a gradual build-out: 29,000 square feet of shops and restaurants on a slice of land adjacent to Highway 50.

No names have been announced, but Feldman said the tenant mix will be “mid-market to upscale.”

Opening is expected next summer, and locals couldn’t be happier. “It’s certainly been an eyesore,” said Scharer, whose golf course is a half-mile north of the site. “We’re delighted to see some activity there.”

Scharer’s firm, Edgewood Cos., has big plans of its own. It wants to build one of the lake’s finest hotels, with 154 luxury rooms, 40 residential units and a spa.

He said he hopes to line up the necessary $100 million to $130 million in financing in the next six months, and begin preliminary site work next year. If all goes well, the hotel could open in 2016.

“What we’re trying to do is bring back some of that cachet at Lake Tahoe, raise the bar back up,” Scharer said. “We hope we’re priming the pump for this reinvention of Lake Tahoe.”