WeHo’s Hotel Market Gets Hotter

It’s not even summer and the West Hollywood hotel market is getting hot. That’s according to a story published by The Real Deal, the development industry trade publication. According to its sources, hotelier Jeff Klein has paid almost $1.2 million a “key” (the hotel industry term for a room), to buy out his former partner’s stake in the Sunset Tower hotel. That’s 23% more than what Northwood Investors paid for The London in 2013.

Another sign of the market’s heat is The Real Deal’s report that Starwood Capital is negotiating the purchase of the as-yet-unopened James hotel on the corner of Sunset and La Cienega boulevards. The Real Deal’s sources said Starwood’s offer to the CIM Group for the 286-room hotel is almost $975,000 a key, which would be almost $280 million.

The hotel is part of CIM Group’s Sunset La Cienega project. It sits on the southeast corner of the intersection. In addition to the two 10-story high hotel towers, it includes ground floor retail and restaurant space and a plaza that offers a sweeping view of West Hollywood and Los Angeles. On the southwest corner of the intersection is a two-acre parcel on which CIM has built two, eight-story residential towers that will contain approximately 190 units.

Construction of new hotels in WeHo has been the subject of debate on the West Hollywood City Council, with Mayor Lauren Meister calling for a one-year moratorium on new ones until the city can analyze their impact on the existing hotel industry, whose room tax is the largest single source of revenue for the city’s general fund. Meister’s proposal was rejected by her fellow Council members.

Meister based her proposal on a study by PFK Consulting and CBRE Hotels. That study noted that WeHo hotel projects under review, under consideration and already approved for construction would add 1,229 rooms to the city’s current 2,060 hotel rooms, an increase of 60%. The study projected that by 2020 the hotel room occupancy rate would fall to 68% from the rate of 83% in 2015. It also said that the average daily room rate would fall to $243 from an average of $279 if both hotels that have been permitted but aren’t yet under construction and those that are under review but not yet permitted actually are built. Meister also has noted that four projects under consideration were not included in the PFK study. They would add an additional 443 rooms, increasing the supply of hotel rooms by 80%.