How many hotels are enough — or too much?
A question that once seemed theoretical is increasingly on the minds of Napa leaders who have witnessed the downtown hotel market bloom, and who will help decide how many more rooms are built for a tourism market that shows few signs of slowing down.
The rise of steel girders and plate glass at what will become the six-story Archer Hotel has symbolized the rise of a business that now accounts for nearly a quarter of Napa’s annual tax revenue – $18 million in the year ending in June 2016.
Such successes have inspired other developers to turn toward the city’s center, proposing lodgings downtown and in the Oxbow district to the east.
One proposal from the local developer James Keller would place a boutique hotel with about 80 rooms inside a repaired, renovated downtown post office building on Second Street. To the east on First Street, Andrew Siegal increased the possible number of hotel rooms from 17 to 27 at his planned four-story mixed-use complex – which would be across the street from a parcel where J.B. Leamon has pre-applied to build a 74-room inn, along with condominiums and commercial space. Even the city’s own playbook for raising a new City Hall contemplates paying for the effort partly with room tax revenue from a hotel that would occupy a portion of the site of Napa’s current headquarters.
All told, 10 hotel development proposals in varying stages of city review could boost the number of rooms in the city by as many as 1,200 if all were to be approved, financed and built, according to Rick Tooker, Napa’s community development director.
“Can the market absorb this?” he said recently. “Historically, that doesn’t appear to be an issue for now – but conditions are always changeable.”
Napa’s strategy for developing its city core is embodied in the Downtown Specific Plan, which was passed in 2012 to lay out the location and quantity of tourism, commercial and other land uses. The document envisions adding up to 303 hotel rooms in the city center, but the enthusiasm of developers has put the potential number of rooms far beyond what that plan imagined.
A sense of the hotel boom possibly outrunning Napa’s ability to keep up a balanced community – a town able to serve its locals as well as visitors – crept into Councilwoman Juliana Inman’s musings on tourism growth at the council’s annual goal-setting retreat in January, when members discussed giving a fresh look at hotel density downtown.
“If we’re not balancing uses between retail and offices and hospitality and restaurants, then we are going to have a lopsided build-out; we’ll have too much of a good thing,” Inman said Wednesday, calling for a more wide-ranging look at the effects of more hotels on all aspects of local life.
“This is a much bigger question than hotels or no hotels,” she said. “With any commercial development, you have to ask: What kinds of jobs are created? What kind of housing does it generate? If everybody who has an idea for a hotel builds one, how many rooms are we talking about? How many employees are we talking about? And where are they going to live?”
Concerns about overreliance on the hotel sector can fall into two categories, according to Inman. First, the extra workers needed to staff new lodgings face a constricted housing market especially short on affordable dwellings. Also, properties devoted to hotels become unavailable for other uses – including businesses that could keep churning out tax revenue should Napa’s tourism market slump – or if a disaster knocks large numbers of rooms out of service for weeks or months.
Any such guidance is far more likely to come from the city rather than the industry, Inman predicted, saying: “Businesses will build until the market gets to saturation point, and then some businesses will fail. That’s the free market.”
Planning staff will likely release a white paper on the future of hotel growth in the next one to two months, outlining future opportunities and challenges, according to Tooker. Still to be decided is whether the city will fold its recommendations into its next general plan—for which discussions are expected to start later this year – or try to put standards for hotel development in place before then, as lodging proposals mount.
Not all lodging developments will go as far as a council vote, much less win financial partners, gain a hotel operator or turn a spade of earth. Among the long-approved projects in Napa is a hotel resort off the Silverado Trail, which gained city approval in 2008 and once had the backing of the Ritz-Carlton chain but has languished since.
Planning officials have contacted all of those who have lodging proposals already under city review or are preparing to apply, according to Tooker.
“We’ve tried to say to the market, you ought to look at what works and what doesn’t, because the city can engage this process more proactively,” he said. “But when someone has a vision, it’s hard to step in and say that may or may not work. We’ve encouraged people to look at what’s in their best interest, but also what’s in the best interest of the geographic area.”
“Those who have expressed interest in developing hotel uses in the downtown area are continuing the course. I haven’t seen anyone say ‘OK, we’ll go a different way.’”
Meanwhile, one developer trying to enter Napa’s hotel market is more optimistic about tourists’ appetite for more beds in the city’s heart – whether built by himself or by others.
Occupancy rates, per-room revenue and the performance of existing hotels point to demand that shows no sign of slowing, said Keller, who is in negotiations to purchase the former Franklin Station postal building, closed since the 2014 earthquake, to convert to a hotel.
Countywide, hotel occupancy in November was up by 1.6 percent from the same month in 2015, to 70.4 percent, said Visit Napa Valley president Clay Gregory, citing figures from the STR hotel research firm. Revenue jumped 13.7 percent from a year earlier to $30.2 million for the month, boosted by rising average rates that reached $297 a night, a $25 increase.
The Napa Valley’s proximity to San Francisco and cachet with foreign tourists add up to a reliable flow of customers, while Napa is free of the size constraints of Upvalley towns and the strong land-use restrictions of the unincorporated county, he said.
“We are an international 365-day destination now, (and) I think we have a lot of Bay Area people taking day trips who would like to spend the night and the weekend here if they could, but supply is just not there.”
“Napa doesn’t close at 9 p.m. like the rest of the valley does. If a few hundred more units come in over the next five years, I have no problem with that – I think all boats will rise.”
Ultimately, regardless of what guidance the city provides, developer interest in Napa is unlikely to wane in the absence of dramatic economic change, predicted Councilman Scott Sedgley.
“As we approach (303 rooms downtown), a lot of factors will be considered on the development side, said Sedgley. “Are they still 85 percent occupied (at peak times)? In my opinion, it’s market-driven. Sometimes I get criticized for approving hotel rooms. People say to me, ‘Why do you build more hotels?’ And I say, ‘We don’t build hotels; investors do and as long as the market is high, they will remain interested.’”
Napa’s best way to protect itself may be to avoid overspending its growing room-tax money and using it to build its reserves, he said – and to stay atop trends in the vacation industries.
“I’m an optimist; I think the future is bright,” said Sedgley. “I see Napa, at least in my time, as being an exciting place – barring natural disaster or phylloxera – that a lot of people will want to come and visit, international and domestic.”