May 20, 2020 Joseph Pimentel, Bisnow Los Angeles
Before the coronavirus pandemic, the city of Anaheim was slated to embark on another record year. Disneyland’s Star Wars: Galaxy’s Edge had finally completed in January, the city was set to welcome six new hotels this year, the convention center was attracting more events and the Los Angeles Angels, with a new manager and stadium, were looking to draw another 3 million fans for the 18th year in a row.
But the coronavirus crisis has effectively halted the city’s momentum. Disneyland and the city’s convention center is closed. The hotels around the city’s resort district are empty. The Angels’ parking lot is now home to thousands of unused rental cars.
The city is expected to face a shortfall as its two major revenue generators, a transient occupancy tax and its sales tax, will normalize.
Now, as California begins to slowly allow cities to reopen, more businesses in Anaheim are looking to rebound and rehabilitate an ailing hospitality and tourism industry.
“Our first look is at internal cost-cutting first,” Anaheim City spokesman Mike Lyster said. “We as a city pride ourselves on being a low cost, low tax city, so we are looking to manage this with internal savings first. The bigger plan is to help businesses to reopen safely and quickly to restart our economy.”
“Our main source of revenue is from hotels,” Lyster said. “We know they’ve been hit hard. We need them to recover first.”
But some experts say the recovery of Anaheim and other cities that are heavily reliant on tourism may not recover until a vaccine or effective treatment stops the coronavirus.
“Local government is in a world of hurt,” UCLA Senior Economist David Shulman said. “This is especially hitting cities that are tourist-reliant and get revenue from hotel taxes and sales taxes. This isn’t just regular tourism. There is also business tourism and conventions. So if your city is Santa Monica, Anaheim, Los Angeles, this shutdown is creating big holes in your budget.”
Anaheim is a unique case study on how the coronavirus can gut economic drivers. The largest city in Orange County and about an hour drive from downtown Los Angeles, Anaheim is home to Disneyland, a massive convention center and two major sports franchises, the Anaheim Ducks hockey team and the Angels Major League Baseball team.
Disneyland, the convention center and the two sports franchise stadiums are all within a few miles of each other. There are more than 75 hotels totaling about 17,000 rooms within 2 miles of the convention center. The city annually attracts more than 22 million visitors, a majority of whom are visiting the Disneyland Resort theme parks.
Last April, the hotels within the city’s resort district had an 81% occupancy rate and $165 average daily rate, or ADR, one of the industry’s major indicators of a hotel’s performance and profits, according to STR. In the fourth quarter, the national occupancy rate average sat at about 62% and $129 ADR, according to STR.
When the coronavirus began shutting down travel and businesses in March, Anaheim’s resort district hotel occupancy fell 19% and ADR to $75, according to STR data.
“It’s been a double whammy for them,” Atlas Hospitality Group President Alan Reay said. “The vast majority of revenue that comes into the city of Anaheim is transient occupancy tax and sales tax … and they are not seeing a lot of that.”
During a January budget meeting, Anaheim’s financial prospects were looking good. In the 2019-2020 city budget, the city was expected to generate $174M in transient occupancy tax and $89M in sales tax. That money goes directly into the city’s general fund, which pays for essential city services such as firefighters, police officers and street repairs.
But that has dropped. According to Fitch Ratings, city officials are expecting a $40M drop in hotel and sales tax revenues from April through June.
“We are seeing a significant impact on our budget,” Lyster said. “We don’t have the exact numbers to share and we will be sharing those soon with our city council. We have seen two months where the two major revenue generators in our city have been idle.”
Lyster said the city has already taken some action, including a hiring freeze that affects every position except for a police officer or a city planner to help streamline certain projects. The city is also tapping into reserves from the convention center and its general funds, Lyster said.
The Voice Of OC, a digital news publication, reported the city approved $6.5M in April to support Visit Anaheim, the city’s tourism arm, to bring back visitors to Disneyland and hotels in the resort district.
Additionally, the city is on the second part of its four-phase plan to safely reopen businesses, Lyster said. The second step, aligned with the state’s guidance, is reopening certain businesses for curbside pickup and delivery. The third and fourth steps will involve the reopening of other major businesses, offices and Disneyland and the hotels.
“We want to move through those phases as quickly as possible,” Lyster said.
Lyster said one thing they are not considering at the moment is raising taxes to offset the coronavirus’s impact on the city budget.
“We would need to look at every option but raising taxes and fees is not on any list,” Lyster said.
Disney has not announced when its California theme parks will reopen. Last week, the company opened Shanghai Disneyland with limited capacity, and a few days later it reopened Disney Springs, a retail district in Walt Disney World in Florida.
But if Disneyland reopens, will people come back to Anaheim’s hotels?
Reay said he is not sure. Disney and the hotels in the resort district are still trying to figure out how to safely comply with new social distancing requirements and other health guidelines. There is also still a fear of large crowds.
“Disney can open and that will bring in some people, but the likelihood, right now, is people would rather go to the coastal areas, especially during the summer, and still avoid Disney,” Reay said, adding that it is probably easier to socially distance from people on the beach than Disneyland.
Reay added that there is a lot of information from experts that there might be a second wave of the coronavirus, keeping people indoors.
“That might hold people back and hold companies back in terms of the business travel and leisure travel,” he said.
As for when things will go back to normal in Anaheim, Lyster said it is going to take a few more months.
“Our goal is to see the major drivers of our economy, the Anaheim resort district, theme parks, convention center, shops and stores [open as quickly and] safely as possible in coming months,” he said. “We are hoping to see gradual reopenings in the coming months.”