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Why More Hotels Won't Get Built

San Francisco Hotel

Rooms are in high demand (cough Oracle conference). So... build more product? That doesn't make financial sense, according to experts at Bisnow's Hospitality Summit yesterday at the Marines Memorial Club & Hotel.

HKS VP and director-design Tom Sprinkle says with all the new events coming to town and ones already booked, there's political pressure to get new hotel rooms in the pipeline. He believes the impactful tech advances in hotels will be the stuff you don't see. There could be a way service elevators know when that housekeeper is done so there's one standing on the floor waiting, for instance. There's no way to predict the best technology available for a hotel opening four years from now, so he makes sure the technological backbone is there to adapt.

Kimpton Hotels VP Jesse Stein feels the upswing in the cycle has time left so his brand is a believer in renovating now. The great thing about very little new supply coming to S.F. is that even if the economy slowed and occupancy slipped from 84% to 80%, that's not bad. As far as what works in hotel design, he thinks common areas and the ability to plug in are key, to promote the "together but alone" type of gathering guests flock to.

Swinerton Builders operations manager Ron Kowalski has worked on and renovated 20,000 guest rooms in three-to-five star hotels. During the slowdown in 2008, people were taking work at no cost just to keep people working. Now he's seeing margins for subcontractors up 10% to 15%, whereas GC fees are up just 1%. Most of his business is repeat biz.

JLL SVP Sonia Greenlee, who moderated, says the question on everyone's mind is there appears to be so many office and residential developments but not much hospitality in S.F. Aside from the Intercontinental in 2008, no significant rooms have been added. 

Denihan SVP Julie Purnell says it's really hard to make the economics work for ground-up hotel construction because competition from office and residential users is driving up the land value. Since last summer, 15 hotels have transacted in S.F., the highest of which was Vitale's $650k/key, with the average trading at $325k/key. We can't build from a construction standpoint anything for that much.

Julie's NYC-based firm, which has 14 boutique hotels and is looking to plant one here, says our market almost like the gold rush again. She thinks we live in a land that's a little like make believe because there's so much job creation and real estate development. (We think every hotel is sort of make believe. You ever try asking for room service at home?)