Jan. 15 (Bloomberg) -- Luxury hotel owners are betting that downtown Los Angeles -- an area dominated by government buildings, law offices and banks -- will lure convention visitors and tourists from the city’s ritzy enclaves.

 

Marriott International Inc. will open a Ritz-Carlton, downtown L.A.’s first five-star hotel, and a JW Marriott in the next two months as part of Anschutz Entertainment Group’s 4 million-square-foot L.A. Live entertainment complex. Luxe Worldwide Hotels is spending $10 million to revamp the downtown Holiday Inn into one of its boutique-style hotels.

 

The hotels will bring new meeting space and hundreds of rooms to downtown Los Angeles at a time when the lodging industry has seen its biggest occupancy declines in decades. The openings are part of a decade-long revitalization project in the area, where many streets are deserted after dark as visitors flock to trendier spots in West Hollywood or Beverly Hills.

 

“These hotels will draw business into downtown,” said Jack Kyser, founding economist of the Kyser Center for Economic Research at the Los Angeles Economic Development Corp. “The impact on west side hotels in Beverly Hills and Century Plaza will be pretty severe. One of the key factors is that downtown will have the biggest ballrooms in the city.”

 

The Ritz-Carlton and the JW Marriott could help bring as much as $30 million in revenue to the city each month, including room, discretionary and other spending, according to Timothy Leiweke, AEG’s chief executive officer. The JW Marriott has 77,000 square feet of meeting space for conventions.

 

The two hotels, which share the same tower through separate entrances, have more than 250,000 room nights booked by groups through 2024, according to Karen Englund, marketing director at JW Marriott Los Angeles. Reservations have been boosted by demand from convention organizers, she said.

 

“The Ritz at L.A. Live has been said to do for downtown L.A. what the Marriott Marquis did for Times Square, bringing in tourist-friendly businesses,” said Vivian Deuschl, corporate vice president of public relations at the Ritz-Carlton.

 

The average room price at the JW Marriott, which boasts a three-story lobby with massive crystal chandeliers and the Ritz- Carlton spa on the second floor, is $269. At the Ritz, where an outdoor infinity pool on the 26th floor overlooks the city skyline, the average nightly cost is $369.

 

Luxe Worldwide, which owns hotels on Rodeo Drive and in Bel Air, is spending $50,000 a room to turn the 200-room Holiday Inn into a four-star hotel, according to Chairman Efrem Harkham.

 

“Downtown doesn’t have a boutique hotel and it needs one,” Harkham said in an interview. “We will help to effect change in the area.”

 

The timing is challenging. Hotel rates may drop 3.4 percent in the U.S. this year, according to Smith Travel Research Inc. An industry recovery isn’t likely until 2011 because room rates and commercial real estate values have tumbled, Fitch Ratings said in December. The JW Marriott and Ritz-Carlton structure broke ground in June 2007.

 

“Once we started to put steel in the ground a few years ago it’s not easy to turn back on a 54-story hotel,” said Leiweke.

 

Hotel foreclosures in California more than quadrupled last year to 62 from 15 in 2008, Irvine, California-based Atlas Hospitality Group said this month. Lodging properties in default jumped almost six-fold to 307, said Atlas, which specializes in selling hotels.

 

The economic slump has led some developers to halt their hotel projects in downtown Los Angeles, according to Kyser. Plans for a five-star Mandarin Oriental were put on hold when the city’s Grand Avenue residential, hotel and retail project planned by New York-based Related Cos. stalled in 2008.

 

“The Grand Avenue development has indeed been postponed,” said Edouard Ettedgui, chief executive officer of Hong Kong- based Mandarin Oriental International Ltd. “However, it is an exciting project with the vision to create more of a high-end destination of the L.A. downtown area. Los Angeles is a strategic city for a luxury hotel brand like ours.”

 

The revival of the 65-block area -- spurred by residential building and the additions of the Staples Center and Walt Disney Concert Hall -- has been a slow process over the past 10 years. The streets around City Hall and other government buildings empty out after office workers have gone home. Bar hoppers seek pockets near the Disney hall or Staples Center at joints such as The Broadway, The Edison or The Standard Downtown LA.

 

On Sunset Boulevard in West Hollywood, where such popular hangouts as the SkyBar at the Mondrian Hotel and Bar Marmont are located, sidewalks are crowded well past midnight every night of the week.

 

“Downtown is still struggling,” said Kyser. “You still don’t have a 24-hour downtown -- that is still a couple of years off. There are the homeless that trickle in from skid row, which is not that far, and a lot of residential developments have hit the iceberg of no financing.”

 

The area may also have trouble persuading travelers who usually stay in Beverly Hills or other west side sections of town to instead stay downtown, according to Bruce Baltin, senior vice president at Los Angeles-based PKF Consulting. From the site of the Ritz-Carlton to Grauman’s Chinese Theatre and the Hollywood Walk of Fame is about 10 miles, about a half-hour drive in traffic.

 

“Downtown will practically need a reintroduction and reorientation,” said Baltin. “Getting people who are west side visitors to come downtown is going to be a challenge.”

 

Bethesda, Maryland-based Marriott is aiming for 70 percent average occupancy at the downtown hotels, Englund said. For the month of June, occupancy, helped by already scheduled events, will likely be between 80 percent and 100 percent on most nights, according to Leiweke.

 

“Many of the bookings are from organizations that haven’t considered Los Angles before and would normally go to San Diego or San Francisco,” Englund said during a walk-through of the Ritz-Carlton and JW Marriott construction site last month. “We have also seen pre-existing businesses that are now switching from their usual West L.A. locations to us.”

 

The number of city-wide conventions, events that use the Los Angeles Convention Center and three or more hotels, is increasing because of the availability of upscale hotel rooms in downtown, according to Carol Martinez, spokeswoman at L.A. Inc. Los Angeles Convention and Visitor Bureau.

 

In 2009, an estimated 17 conventions took place in Los Angeles with about 180,000 room-nights booked, she said. For 2010, 18 conventions and 225,000 room-nights are planned.

 

“It used to be that there was a good convention center but only 600 hotel rooms within walking distance and no real four-or five-star hotels in the periphery,” Kyser said. “Now this will change.”