Developers zero in on Napa Valley for luxury hotels

2012-07-12T00:00:00Z Developers zero in on Napa Valley for luxury hotelsSean Scully Napa Valley Register
July 12, 2012 12:00 am  • 

When Bald Mountain Development decided to look for markets outside of its home base in the Colorado Rockies, it examined a number of places to build new high-end hotel projects — like Mexico, Jackson Hole, Wyo., and Mammoth and other ski resorts.

One place kept drawing its attention: California’s wine country.

“You don’t need to be a rocket scientist to ID Napa Valley, Sonoma or Healdsburg as a place where you’re not taking a huge gamble building a high-end resort,” said Kelly Foster, a principal in the company, which has a number of projects in its portfolio including the Aspen Highlands ski resort.

Particularly attractive, he said, was Napa County.

The logic was inescapable: More than 2 million visitors come per year, making up to 5 million trips to the valley. With more than half of those reporting household incomes over $100,000, according to a 2008 study, there is plenty of money pouring into the valley.

And out of around 5,000 available rooms in the county, only around 300 are in what might loosely be called the “luxury” market: top-shelf amenities, gourmet restaurants, spas, and a room rate starting around $500 per night.

So now, Bald Mountain has three projects in various stages of development. The largest, approved by the Calistoga City Council in May, is a plan to tear down the existing Silver Rose Inn and winery along Silverado Trail, replacing it with an 84-room hotel and spa, with a restaurant, a 10,000-case winery, a

6-acre vineyard and 21 freestanding homes.

In St. Helena, meanwhile, Bald Mountain is in the early stages of plans to build a hotel either on the current site of City Hall or on a vacant city-owned parcel on Adams Street near the library.

“It’s something we’ve known for years, especially in the business community and wine community,” said Pam Simpson, president and CEO of the St. Helena Chamber of Commerce. “People who visit Napa Valley enjoy our lifestyle and want to be part of it; therefore, luxury hotels fit their needs.”

And Bald Mountain is not alone. A financial consortium is proposing to build a project called “Enchanted Resorts,” a 110-room resort on 88 wooded acres on a hillside in Calistoga near the intersection of Highway 29, Foothill Boulevard and Lincoln Avenue. The property would also feature a spa, restaurants, 20 fractional-ownership houses, and building sites for up to 13 private houses.

Two additional hotel projects have already been approved in St. Helena: the 60-room Vineland Station hotel south of downtown and the 57-room Grandview Hotel north of downtown. One or both are expected to break ground within the next year.

In the city of Napa, meanwhile, two approved projects remain on the books: the 245-room St. Regis south of town and a 351-room hotel east of the Napa River in downtown that could become a Ritz-Carlton.

Those two hotels would immediately vault into the top five in size in the county, where most hotels are tiny by industry standards — well under 100 rooms.

So what’s going on? Why are developers intent on dropping hundreds of millions of dollars on construction in Napa Valley, seemingly all at once?

It really is as simple as the numbers, developers and government officials say: Rich people are visiting a place without a lot of premium hotels.

“Hotel industry consultants are generally quite bullish about Napa Valley’s potential for growth at the high end” as well as other tiers, said Clay Gregory, president and CEO of the Napa Valley Destination Council.

Napa hotel consultant Don Winter, who is not involved in the projects currently proposed in St. Helena and Calistoga, said the end of the long economic downturn has left lots of pent-up demand, both by customers and by investors whose money has been sidelined for the past five years.

Because of the economic downturn and the hassles imposed on air travel since Sept. 11, 2001, he said, people with disposable incomes are looking for accessible destinations — the “closer paradise,” he calls it — and Napa County is an obvious choice.

To some degree, the recent swirl of interest by hotel developers and operating companies such as St. Regis may be an effort to edge out competition, said Jennifer La Liberte, economic development manager of the city of Napa.

Because the county so tightly protects agricultural land, most of the land in Napa County is off-limits to commercial development. That leaves development in the cities, and competition for land there is intense.

“There are not a lot of large developable sites around the valley,” La Liberte said.

Developers and the hotel companies, therefore, are eager to get a foothold on available property before anyone else does as the economy recovers.

While developers and government officials have been enthusiastic about the potential for Napa Valley resorts, some residents have reacted with horror to the influx of projects. Opponents of the two resorts proposed in Calistoga have already put the Bald Mountain project on the ballot in November and are threatening to do the same to the Enchanted Resorts plan should the City Council approve it.

Opponents in St. Helena say they too will seek to block the proposed developments should they be approved by the city.

Critics have argued that the projects are too large and will change the character of the towns, flooding them with traffic and visitors with no investment in the communities. Housing advocates in all the cities have complained that the developers are not doing enough to add to the stock of affordable housing for workers at the new projects, forcing them to commute long distances, clogging the roads and adding to pollution.

Officials in all the cities, however, say the financial logic of hospitality is simply irresistible.

“In terms of maximizing the value of a square foot of land in the city, nothing is a better return on investment than lodging,” said Calistoga Chamber of Commerce Executive Director Chris Canning, who also sits on the City Council. “And premium lodging is the best.”

Here’s why: Hotel guests pay a 12 percent levy, known as the Transient Occupancy Tax (TOT), on every room night spent at a hotel, motel, inn or bed-and-breakfast. That money goes to the local government where the hotel is located.

With the sales tax, meanwhile, the local government gets a mere 1 percentage point of the 7.75 percent tax rate.

That means that if someone buys a $500 suit in a store in St. Helena, for example, the city gets $5. If a guest pays $500 for a single night in a hotel, the city gets $60.

“The TOT potentially would be a huge windfall for city coffers,” St. Helena City Manager Gary Broad said.

Tourists are already coming through St. Helena in large numbers, he said, so it makes sense to try to capture them in the way that benefits the city most: by having them spend the night.

Despite the strong reaction against some of the recently proposed developments, Winter says the county is in something of a lull in hotel construction, based on his research for a forthcoming book on the robust history of the local lodging industry. At the moment, there are about 19 proposed hotels and bed-and-breakfast projects in the county, many of which will never get off the ground, he said.

Compare that with some of the boom times. Between 1870 and 1879, a golden age for lodging in the valley, 63 new hotels and inns were built. Between 1910 and 1919, 41 were built. The biggest boom the county had ever seen was between 1980 and 2009: 123 new operations in the 1980s, 66 in the 1990s, and 58 in the first decade of this century.

“Hotels are like bananas,” Winter said. “They come in bunches. … You’ll see clusters through history.”

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(10) Comments

  1. glenroy
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    glenroy - July 12, 2012 7:15 am
    I’d prefer my friends in low places to my friends in high places any day of the week…

    We have plenty of hotel, motel, B&B’s…..cut government spending instead of approve anything and everything just to get the fees.
  2. Paddy
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    Paddy - July 12, 2012 9:04 am
    The problem is that with each of these hotels comes the demand for more affordable housing and more housing in general. I hope they saddle Calistoga and St. Helena with all of the housing requirements for these projects. I am sick of the traffic and the new housing projects recently approved.

    One persons paradise found is another personss paradise lost. Soon nobody will want to come here anymore and all housing will be 'affordable'.
  3. Leo624
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    Leo624 - July 12, 2012 9:52 am
    So why is there a "For Sale" sign posted in front of the old Vallerga's Mkt/Liquor Warehouse on 1st Street?? Wasn't this all part of the proposed Ritz Carlton Hotel site?? It appears that someone is thinking twice about building out on this site.
  4. bluecollardoctor
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    bluecollardoctor - July 12, 2012 10:32 pm
    While I would like to see more high end hotels built in the Napa Valley (especially south of Napa), I agree there are some potential problems.
    Considering Napa Valley a "sure bet" is a bit cavalier, as a know or yet unknown insect or disease could wipe out the vineyards in a flash. Then what? Like a ski resort where it never snows?
    I am not a fan of this affordable workforce housing requirement. My idea of affordable housing is me renting the loft above my garage to someone "under the table" and the government leaving me alone about it. Not gonna happen when a family of 4 making 40K/yr can "cry poor" and live in palacial subsidized housing.
    I'd like to see the developers of these hotels give back to locals in other ways, tangible and intangible, thru anything from beautification to discounts at the bars, spas, restaurants etc. This is much more valuable to the aesthetic of the area than "workforce" housing.
  5. Calistogamom
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    Calistogamom - July 14, 2012 6:50 am
    I have noticed that the housing stock of Calistoga is decaying before our eyes. Why can't people invest beautifying their homes in this town? Maybe if we permitted vacation rentals with a permit in this town, and charged them the tot tax, property owners would be motivated to improve the existing structures. I do not want Calistoga to turn into a third world looking bunch of hovels surrounded by gated high end resorts, like you see in Mexico. A financial incentive to upgrade existing properties in this town is needed. We need to make sure these new resorts send people to our town to spend $ instead of keeping them confined to the resort. Solage has been a great addition to this town, and they give guests bikes to get around. Also since these resorts have no tennis courts the guests have to use the city's courts, so the developers should help pay to refurbish calistoga's tennis courts if they do not provide their own courts.
  6. reason-ator
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    reason-ator - July 14, 2012 10:59 am
    I just love Napa cheerleading.

    Give me an "N".....

    We are so wonderful we want EVERYBODY to come and ruin it.

    So the cities can have more money to spen enticing even more tourists.

    Darn those pesky hills. They're cramping the development of Fontana North.
  7. garretth37
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    garretth37 - July 18, 2012 10:51 am
    High End hotels in downtown Napa will make good sense, 5 to 6 story buildings, ground floor retail, people walking back and forth all the stuff in Downtown. We are a tourist attraction, we are on the big map of the big travelers of the world. Let them come, they will pay the TOT, sales tax, buy goods, bring businesses, they might go and find coffee at the NVCR Co.
  8. TheFutureInSH
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    TheFutureInSH - August 19, 2012 1:53 pm
    That parcel is not part of the proposed Ritz-Carlton site.
  9. TheFutureInSH
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    TheFutureInSH - August 19, 2012 1:56 pm
    It is sad what is happening to blocks of housing in Calistoga. People need to take pride in ownership and keep there homes and yards beautiful. No excuse to allow properties to look so bad.
  10. TheFutureInSH
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    TheFutureInSH - August 19, 2012 1:56 pm
    here here...
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