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Sonoma County lodging sector bustling with hotel construction and expansion

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2018: 78 percent

2017: 77 percent

2016: 77 percent

2015: 76 percent

2014: 74 percent

2013: 73 percent

2012: 67 percent

Source: STR

Sonoma County’s hoteliers are playing catch-up to make room for the growing number of visitors.

The lodging industry is undergoing unprecedented expansion with about a dozen properties slated to open in the next few years.

The hotel building boom comes after a dearth of new lodging in the earlier part of the decade. Developers and hoteliers now appear to be making up for inactivity in the aftermath of the Great Recession, as the county remains a prime destination for wine tourism and an array of other activities and places to visit.

“This is a very strong county. ... The occupancy level is very, very high,” said Jan Fertig, senior vice president for STR, a Tennessee research firm and longtime tracker of the global hotel industry. “Developers see a hot market and say, ‘Let’s get into it.’”

Developers are betting Sonoma County can keep delivering more tourists. It’s averaging about 7.5 million visitors a year. Those visitors are staying in more than 7,000 hotel rooms and 3,700 campground and recreational vehicle spaces, according to Sonoma County Tourism figures.

Local hotels reported a strong rebound in 2018, following a year in which the North Bay wildfires put a big dent in tourism. Overall, revenue last year for hotels here was $332 million, up 7 percent from 2017, according to STR data. Meanwhile, county hotels had an occupancy rate of 78.2 percent last year, which represents a significantly higher volume of overnight guests than the national average occupancy rate of 66 percent and a bump from the 77 percent rate here in 2017. Hotel occupancy levels locally soared to 85 percent last June during the summer travel season.

Over the past five years, the county’s annual hotel occupancy levels consistently have advanced from the 73 percent mark in 2013, signaling a strong lodging market, according to STR.

Notwithstanding the higher occupancy levels, county hotel developers and operators face formidable challenges to continued growth. Increased construction costs present a concern. Also, more and more tourists are booking their Sonoma County vacation rentals online through Airbnb and staying at a variety of the participating area private residences often for cheaper prices.

Hotel shortage

Another persistent worry among tourism officials is the county doesn’t have enough hotels, with meeting rooms and a kitchen, to host conferences and executive retreats.

“We got to make sure we bring the right type of (hotel) developments to the county,” said Joe Bartolomei, managing partner of the Farmhouse Inn in Forestville and chairman of the Sonoma County Tourism board.

Hotel construction is visible from Highway 101 through Santa Rosa to the reunified Old Courthouse Square downtown. In Santa Rosa, there’s a need to make up for three hotels, containing 400 rooms overall, gutted during the October 2017 fires.

Since then, the 34-room Astro hotel on Santa Rosa Avenue has opened. And Hyatt Regency Sonoma Wine Country near Railroad Square finished an 89-room expansion and the four-diamond luxury Vintner’s Inn added another 34 rooms and suites. Those rooms made up only 40 percent of the rooms that were lost during the fires.

Local officials and developers realize that’s not enough and say more hotel capacity is on the way.

2018: 78 percent

2017: 77 percent

2016: 77 percent

2015: 76 percent

2014: 74 percent

2013: 73 percent

2012: 67 percent

Source: STR

New addition

The big hotel addition this year will be the spring opening of Hotel E in downtown Santa Rosa. Veteran developer Hugh Futrell is leading the project. The 100-year-old beaux arts building is undergoing a conversion into a boutique hotel with 39 rooms, conference space and a wine bar. A second phase with more than 30 rooms is slated to open later in the year, with a restaurant from the well-known San Francisco restaurant chain Perry’s and a coffee shop.

“That’s just going to elevate this area,” Brad Calkins, executive director of Visit Santa Rosa, said of the hotel on Old Courthouse Square.

New construction

Elsewhere in Santa Rosa, construction has started for the Inn at Santa Rosa that will include about 100 rooms on Commercial Court right next to Highway 101. Work soon will begin to build a 142-room AC Hotels by Marriott hotel on a parking lot at Fifth and Davis streets on the edge of Railroad Square. Across town, the historic Flamingo Hotel will undergo a $20 million renovation to modernize the classic property and make it more hip for younger tourists.

In addition, a proposed 114-room, three-story Residence Inn by Marriott project will go before Santa Rosa City Council on Tuesday. The city planning commission last month blocked the proposal for the hotel in the city’s Fountaingrove neighborhood, citing concerns about future wildfires.

There also are lodging projects and proposals at various stages of planning and development in Windsor, Healdsburg, Cotati, Rohnert Park, Sonoma, Sebastopol and Petaluma.

Tom Birdsall, who operates the Hampton Inn and Suites in Windsor, is spearheading construction of a 134-room hotel with a bistro off the city’s Town Green.

Birdsall is especially bullish about Windsor, noting all the new attractions in the city from the wine-tasting rooms at Grand Cru Custom Crush to the vast Russian River Brewing Co. brewery and restaurant complex opened in October. The city has been creative in thinking how visitors may be able to get around without a car, such as using a tour bus to shuttle guests around town during Russian River’s Pliny the Younger limited beer release event than ends Feb. 14.

By late 2021, Windsor will have a stop on the Sonoma-Marin Area Rail Transit and some city officials are considering getting a bike-share program to complement it.

“In Windsor, we would love people to come up by train,” Birdsall said. “When we were planning this hotel, we are thinking for the future.”

Construction costs rise

Increasing construction costs after the 2017 fires slowed some hotel builders and remain a concern. The rule of thumb is that a hotel in Sonoma County costs a little more than $200,000 per room to build, Birdsall said, making properties with 100 hotel rooms more than $20 million.

“Construction costs have been out of control, although prices have started to stabilize or even come down a little,” said Ken Molinaro, whose family is planning the Reverb hotel in Cotati. It would be part of the Hard Rock Cafe International hotel and restaurant chain. The project includes a 147-room hotel. There also are plans for a nearby market similar to the Oxbow Public Market in Napa, though Molinaro said that proposal is still fluid.

He thinks Sonoma County has ample capacity of budget-conscious hotels, but there is room for more upscale lodging properties. The average overnight rate in the county last year was $182 before taxes, according to STR.

In fact, Healdsburg had two high-end hotels open up in the past year — the Hotel Trio and the Harmon Guest House — and construction on the luxury 130-room Montage Healdsburg Hotel is scheduled to start in the spring.

“The upper-end market still has a ways to go to reach equilibrium. I am quite confident about the future of the hospitality business in Sonoma County,” Molinaro said.

That optimism comes as local residence vacation rental activity has sharply increased in the region. There are at least 750 such rentals in the county, said Claudia Vecchio, president and chief executive of Sonoma County Tourism.

Driven by Airbnb

Airbnb, the online

marketplace for much of these vacation rentals, has been a big driver. The San Francisco-based company said 228,000 visitors stayed at a Sonoma County residence in 2018. Those hosts — owners of houses, villas and apartments primarily — collected $49 million from their overnight guests. Airbnb didn’t have comparable visitor and income figures from previous years.

Bartolomei, operator of the Farmhouse Inn that includes a nationally acclaimed restaurant, called that local Airbnb visitor total last year “a huge number.”

Yet, thus far there has not been a call from hoteliers or local leaders to rein in the company. Nearby San Francisco last year enacted restrictions on vacation rentals through Airbnb.

David Rabbitt, chairman of the Sonoma County Board of Supervisors, said the concern with Airbnb has been more about the rentals that could take the place of those looking for housing, as opposed to effect on the local hotel industry. In the aftermath of the 2017 fires, the board placed a moratorium on new vacation rentals, but allowed that to expire last year.

“We have a housing crisis and we want to make sure we don’t exacerbate it by having a slew of vacation rentals that could be utilized for long-term housing, Rabbitt said.

Full-service hotels

Despite the whirlwind of hotel construction and lodging properties in the pipeline, the county still lacks full-service hotels with adequate space for business meetings and conventions, Vecchio said. The ability to host business meetings helps hotels in the off-season when occupany typically drops, she said. The Hyatt Regency Sonoma Wine Country and the Sheraton Sonoma County in Petaluma are two prime area hotels that can handle such meetings and conferences.

Developers, however, typically balk at building these larger hotels with meeting space because of the construction cost, said Fertig of STR.

“They are saying, ‘We are really good at selling rooms. We aren’t as good as doing food and beverage,’” he said. “Hotel owners are saying it’s more cost-effective for me to do a limited service.”

Over at Farmhouse Inn in Forestville, Bartolomei said his property experienced a strong first half of 2018, but didn’t meet its budget projections for the second half of the year. The hotel has been cited as one of the best places to stay in Sonoma County. Condé Nast Traveler magazine just placed it on its Gold List of the best hotels and resorts in the world. Right now a room will cost $423 for a weekday night this summer.

The smoke from the 2018 fires at Yosemite National Park and the Camp fire in Paradise played a role in declining occupancy, Bartolomei said. Visitors from outside the state don’t realize those fires can be hundreds of miles away and assume the whole state must be suffering, he said.

“That was a hard one-two blow,” he said of those fires.

Still, Bartolomei is positive given that his guests are looking for the top-notch experience his staff can provide, whether it be a one-on-one meeting with a heralded winemaker, a paddleboard tour on the Russian River, or the food truck he tested on the property last year for casual dining.

“There is so much potential here,” he said. “I think that’s all really positive for our long-term. We’re dealing with a short-time uncertainty through the up and downs of the continual fires we are having.”