165 new rooms, meeting space, fitness center

[caption id="attachment_26690" align="alignright" width="360" caption="An architectural rendering of The Meritage expansion "][/caption]

NAPA -- Two years after being shelved amid worsening economic conditions, a more than $40 million expansion to The Meritage Resort & Spa is under construction as the outlook for the hospitality industry improves.

In October crews started preparing the area on the west side of the existing facility for construction of a three-story second hotel building and single-story conference center clustered around a piazza for outdoor dining and events. The Meritage will have 165 additional hotel rooms, 12,500 more square feet of indoor conference space, coffee shop, sports bar called Crush, bistro, six-lane bowling alley and 1,600-square-foot fitness center.

The Meritage Resort LLC put the expansion on hold in November 2008 as hotel managers industrywide were budgeting for a slowdown in business in 2009 as financial markets were reeling and the economy was contracting. The hotel saw its revenue per available room in 2009 fall 25 percent from 2008, according to General Manager Michael Palmer.

Earlier this year, the expansion was taken off the shelf earlier this year as the company's revenue expectations for 2010 brightened and average daily room rates improved, though not to 2008 levels, he said.

"When this is complete in April 2012, I think it will have been a very smart move," Mr. Palmer said. "In the last several years, there has not been a lot of construction in the hospitality industry in Napa County or the U.S."

The outlook for business and association group bookings, a major source of mid-week revenue for The Meritage, is improving, according to Mr. Palmer.

"October was the second-busiest month since the resort opened," Mr. Palmer said. "Our group business has come back since 2009 and is outpacing the group [bookings] pace from last year."

And the situation is set to improve further with the July approval of the Napa Valley tourism business improvement district, or TBID, according to Mr. Palmer, a board member of the district administrator, Napa Valley Destination Council.

Marketing dollars available are budgeted to increase from $471,000 in fiscal 2010 to $2.3 million in fiscal 2011. Money spent on generating group and leisure sales, which prop up off-season and mid-week occupancy, is set to increase from $162,000 to $781,000 in the first year.

David Turgeon, chief operating officer of the newly formed Napa Valley Destination Council, said it's encouraging to see projects such as the Meritage expansion preparing to come to the market.

"Clearly, things are turning around for our industry and hotel partners," he said. "Things are moving in the right direction."

Average daily room rates in Napa County increased 11.2 percent in the first nine months of this year from the same period last year, compared with a 3.1 percent decline in Marin County, 2.2 percent increase in Sonoma County and 1.6 percent increase nationwide, according to the latest hospitality real estate report from Colliers PKF Consulting USA.

"This is the first year-over-year quarterly increase in ADR for U.S. hotels since the third quarter of 2008," the report said.

The Meritage employs 260 currently and avoided major layoffs last year by doubling up duties with the loss of food and beverage and housekeeping directors and the chief engineer, according to Mr. Palmer. The operation also shifted staff between the existing hotel and conference and the adjacent 116-suite Vino Bello timeshare community, which is managed for Shell Vacations Hospitality of Northbrook, Ill.

"We were really smart in what we did to survive," Mr. Palmer said.

The expansion likely will require 20 to 30 more housekeeping employees, as well as additional staff for maintenance, banquet operations, the front desk, fitness center and foodservice, he said.

The Meritage is one of six luxury hotels Irvine-based Pacific Hospitality Group LLC has developed and manages.

Midstate Construction of Petaluma is the general contractor for the expansion. PK Architects designed the structures.