A resort on the edge of a cliff

By Roger Vincent

June 12, 2009 12 AM PT

More than 20 years after tourist destination Marineland of the Pacific shipped off its whales and closed its gates, a noticeably more refined attraction is about to open atop the same ocean bluffs in Rancho Palos Verdes.

The first official overnight guests at Terranea Resort, a 582-room luxury hotel and spa meant to compete with California’s most upscale coastal inns, will check in today. The opening of the $480-million resort that includes a vast ballroom, restaurants and golf course is the culmination of 10 years of planning and construction. It’s so big it can host five weddings at once.

Unfortunately for the owners, Lowe Enterprises, the long-awaited completion comes at a time when hotels are taking a financial thrashing. Caught by a recession-related pullback in business and leisure travel and a backlash against spending on corporate meetings, resorts have been particularly hard-hit.

It took an $8-million loan from the city just to get Terranea open this week. The five-star St. Regis Monarch Beach in Dana Point, a competitor of Terranea’s, may be sold in a foreclosure auction because its owners have defaulted on a loan, and the owner of the tony W Hotel San Diego said it would default on its June mortgage payment and hand over the hotel to its lenders.

Occupancy at top coastal resorts in Southern California is down more than 15% from last year, said Bruce Baltin, a hospitality industry analyst at PKF Consulting Corp. Room prices are also falling.

“This is probably the most challenging environment for hotels since the Great Depression,” said industry consultant Alan Reay of Atlas Hospitality Group. Revenue has been falling for all types of hotels, especially resorts, he said. “We haven’t seen declines like this since 1931.”

Developer Rob Lowe (not the actor) acknowledged that Terranea was launching into a stiff head wind, but by his reckoning this is not quite the worst time to open a new hotel.

“A year ago would have been the worst time,” he said. “We know what we have to deal with now.”

The brunt of the hotel downturn may have passed, Lowe said, and Terranea can open with recession-level staffing instead of going through the painful personnel cuts many existing hotels were forced to make in recent months.

An upside of the down economy was that Terranea had little trouble recruiting workers, Lowe said, and the hotel will open with 600 employees.

In the days leading up to the resort’s launch, new staff members were clustered in training sessions, learning such skills as delivering room-service meals, mixing drinks and the proper way to greet guests. Tailors set up sewing machines in a conference room to fit workers’ uniforms in 40 different styles.

Part of the developer’s strategy was to position Terranea as a destination for meetings, with one of the largest ballrooms in Los Angeles County at 18,000 square feet.

With many companies avoiding travel junkets, the developers also hope to attract local business. The only large-scale seaside resort between south Orange County and Santa Barbara, Terranea has already booked 29 weddings.

Terranea (a made-up name derived from the word Mediterranean) has a nine-hole golf course, a spa with ocean views, a fitness center, a hair salon, a coffeehouse and public hiking trails. Outdoor fireplaces are common and pathways are lined with walls of Palos Verdes stone dug from the site during construction.

The resort spreads over 102 acres and includes three swimming pools, retail shops and eight restaurants. One casual eatery and bar, Nelson’s, is near the edge of a cliff on a spot where Marineland had its snack bar. It offers views of the Point Vicente Lighthouse and Santa Catalina Island.

“There is a reason Marineland was sited on that point,” said Larry Clark, mayor of Rancho Palos Verdes. “It’s one of the most spectacular settings possible.”

City officials hope Terranea will draw business to Rancho Palos Verdes as well as generate tax income. When Lowe Enterprises said it was running short of money to launch the hotel, the City Council approved a loan valued at more than $8 million this month. The agreement allows the owners to defer payment of hotel taxes for several years.

The tax break will provide necessary financial reserves to operate the hotel, said Bob Lowe, chairman of Lowe Enterprises and Rob Lowe’s father. Their Los Angeles-based company built and will operate the resort. It is still waiting for its lender, Corus Bank, to complete funding of Terranea’s construction costs, Bob Lowe said.

Lowe Enterprises owns the hotel with about a dozen partners. Among them are institutions and some high-net-worth individuals, including real estate investor James York and former L.A. Mayor Richard Riordan, Bob Lowe said.

Terranea has condominiums for sale that can be rented as hotel suites when not in use by their owners. Prices range from $2 million to $4.5 million, and about 50 of the 82 units have been sold, Rob Lowe said. Sales were suspended during the housing crash last year but resumed with the opening of the resort. Daily room rates for the hotel will start at about $300.

Luxury hotel industry competitor Laurence Geller predicted that Terranea would face tough times in the months ahead but emerge from the recession in a strong position.

“For the short term, they need to batten down the hatches,” said Geller, whose company Strategic Hotels & Resorts owns several upscale hotels, including the Ritz-Carlton Laguna Niguel and the Hotel del Coronado in San Diego County.

“In the long term, I think they’re going to be very successful,” Geller said. “They know what they’re doing.”

[email protected]