WESTERN SNAPSHOT, JULY 2008

Los Angeles Lodging Market

Bhojwani

An economic and tourism dynamo, Los Angeles has long been a playground for hotel investors. Boasting perennially high occupancy and average daily rates (ADR), L.A.’s strong tourism base and corporate demand is a mainstay. Its celebrity in the hotel investment arena stems from its powerhouse submarkets, all sharing key attributes that continue making the city a top-five investment market in the nation: high barriers to entry, growing demand, diverse demand generators and strong operating performance.

Downtown Renaissance

Downtown Los Angeles’ central business district is in the midst of an urban revitalization. The area is undergoing a transformation into a lodging market; traditionally it’s been dependent on corporate demand, but now is a dynamic entertainment destination that can support its own tourism base.

Fueling this renaissance is the $4 billion LA Live project, a 4 million-square-foot, mixed-use development that will serve as the catalyst for enhancing the economic potential of the adjacent Los Angeles Convention Center. The project includes a joint JW Marriott and Ritz Carlton Hotel, which will total 1,001 rooms plus 224 luxury Ritz-Carlton Residences. The development is expected to open in spring 2010. With 77,000 square feet of meeting space, the JW Marriott hotel at LA Live will put Los Angeles back in the game of attracting major business shows to the area and will finally give the city a convention headquarters hotel.

West Los Angeles/Beverly Hills – The Epitome of Luxury

High-end retail, luxury homes, fine-dining restaurants and iconic five-star hotel properties, such as the Peninsula, Four Seasons, Hotel Bel-Air and The Beverly Wilshire, define the West Los Angeles/Beverly Hills submarket. Beverly Hills’ Rodeo Drive is considered one of the most prestigious retail markets in the world, and luxury hotels in this market command the highest ADRs in Los Angeles County.

Significant renovations and brand conversions have enabled area hotels to further enhance the guest experience and continue driving ADR. In January 2007, the Park Hyatt Los Angeles was reflagged to the InterContinental Los Angeles Century City, marking the brand’s entrance into the market, followed by Sunstone’s acquisition and conversion of the Westin Century Plaza to a Hyatt Regency. In addition, The Beverly Hilton, which was acquired by Oasis West Realty in 2003, recently completed an $80 million renovation, transforming the property to a first class hotel with cutting edge design and service. Further, the legendary Hotel Bel-Air is building a 12,000-square-foot spa, which is expected to debut in August. New luxury hotel development is also in the works with plans for a 179-room Waldorf=Astoria Beverly Hills and the opening of the 201-room Montage Beverly Hills this fall. Hollywood’s Trendy

Boutique Phenomenon

Hollywood’s legendary Sunset Strip has been one of the most visible hotel markets in the last several years. The area features the historic Kodak and Mann’s Chinese Theaters, numerous tourist attractions, celebrity-inspired nightlife and trendy, high-end boutique hotels.

Located in the Hollywood Hills, the Bel-Age Hotel re-opened its doors as The London Hotel earlier this year. In addition, HEI’s development of the 305-room W Hollywood Hotel & Residences on Hollywood Boulevard and Vine Street will further solidify this area as a sexy, hip destination.

Recent Deals & The Price of Dirt

Some significant recent transactions in the market illustrate the premium investors are willing to pay for Southern California real estate. With an irreplaceable coastal location, the 376-room Laguna Cliffs Marriott Resort & Spa in Dana Point was sold to Cornerstone Real Estate Advisers for $194 million or approximately $516,000 per key in October 2007.

Even the price of dirt in Los Angeles can fetch top dollar as evidenced by the sale of a half-acre Ocean Avenue site, entitled for 73 boutique guestrooms, which sold for $34 million or $465,000 per entitled key. This site attracted investor interest from around the globe, including hotel brands and developers from Europe, the Middle East and Asia. The ability to obtain entitled land was also an integral component of the sale of the Radisson LAX, the largest sale in Los Angeles County based on number of rooms. The Harp Group was able to acquire a highly profitable hotel right at the entrance of LAX and a development parcel on which it plans to construct an extended stay hotel and parking facility. Other institutional quality assets that have traded in the past year in the Los Angeles market include the Ritz Carlton Pasadena, Marriott Downtown Los Angeles and Sheraton Universal Hotel.

As one of only a few U.S. markets to exhibit positive RevPAR growth year-to-date 2008, Los Angeles is poised for a strong finish to the year. Significant renovations, strong brand conversions, new luxury hotel developments and high-price-per-key transactions reinforce the continuing strength of this highly sought-after market.

Romy Bhojwani is a senior vice president for Jones Lang LaSalle Hotels.

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