With the Hollywood Park development underway, many investors see huge opportunities in the Inglewood market. New construction has yet to really take off in the area, but there are some new projects that garner attention. R.D. Olson Construction recently completed the H Hotel adaptive reuse project, which converted a 1962 office building into a duel branded hotel. The developer has seen a lot of success with the property, and has completed other projects in the area—but it isn't expecting massive hotel or multifamily development in that market anytime soon.

“There is significant hotel supply today, but the rates are going up faster than they have gone up in the last year and a half,” Bill Wilhelm, president of R.D. Olson Construction, tells GlobeSt.com. “So, you have to take a step back and ask how many more rooms you can put at the LAX airport. Through 2025, LAX will continue its expansion, and it is going to make a huge difference. We definitely have seen the increased travelers as a plus, but we are also seeing the rates capping.”

The ability to push rental rates has a direct impact on new or redevelopment hotel projects, according to Wilhelm. Although there is demand—and it seems to be growing with some reports estimating an approximate 14 million new travelers to the L.A. area in the next three years—Wilhelm sees flat room rates in the LAX market, and it could halt future development. “When you are a hotel owner, you have a fixed cost of operation, and when you have a fixed cost, you have to push as hard as you can on the rate for your room,” he explains. “We are seeing at this point that we have hit the ceiling on the rate that we are charging for the guestroom. If the rates holds steady and you have a fixed operation cost, it is hard to continue investing before your returns will start to diminish.”

Those bullish on the market also expect an increase in multifamily projects as gentrification comes to the area, but Wilhelm also isn't convinced multifamily will generate better returns. “I am also skittish on multifamily near LAX,” he explains. “Unless you have owned the property for a long time, the construction costs are going to be steep, and that will drive your rental rates way up. I don't know that you can get that high of a rate on multifamily because the office side has deteriorated at LAX.”

The Hollywood Park project, which will bring a major football stadium as well as residential, retail and a hotel to the market in the form of a massive mixed-use complex, is the source of the Inglewood frenzy, but it may not have the immediate impact that some are expecting. “I think Hollywood Park will help, but like anything else, you have to look at infrastructure, accessibility and entertainment in the general area,” he says. “I don't know that a lot of hotels are going to pop-up. You have to look at what else is going on in the area. It will eventually have value, but the question is the timing of it.”

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Is LAX Really On the Brink of a Hotel Revolution?

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