Cautious Hoteliers Converting Existing Properties, Not Building New Ones. (Originated from The Orange County Register, Calif.) - Knight Ridder/Tribune Business News

Dec. 7--In the twilight of the struggle to nurse the hotel industry back to health, some glimmerings of hope are visible from Andy Theodorou's office at the Holiday Inn Express in Santa Ana.

Engaged in perhaps the greatest challenge of his 22-year hotel career, Theodorou is trying to resurrect the 10-story hotel, acquired last year by Los Angeles-based Chicksands Corp. and converted in May to a Holiday Inn Express.

It is the fifth 'flag' the 150-room hotel has worn in its 20-year life and its third in the past five years; changes that reflect the hard-scrabble life to which the recession has consigned many hotels. In Orange County, the recession caught the industry just as the last nails were being driven on an expansion that added 100 hotels, bringing the total to 382 and unleashing ferocious competition.

How to grow in such a market? 'There is no lending money around and no one is building anything, so there is a lot of reflagging,' said Melissa Mills, who tracks hotel occupancy and room rates in Southern California for Los Angeles-based PKF Consulting.

Consider: New Jersey-based Days Inn opened a new hotel somewhere in the world almost every day last year, 93 percent of them conversions.

Choice Hotels of Maryland hopes to add 3,300 hotels in the next eight years, upping its worldwide total to 10,000.

Holiday Inn hopes to nearly double its Holiday Inn Express chain to 200 locations by the end of next year.

Holiday Inn Express is Atlanta-based Holiday Inn's fewer-frills nameplate, with Expresses typically lacking a restaurant and bar.

Theodorou is betting his career that Holiday Inn Express will be the winning emblem for his hotel, which is on East First Street near the Santa Ana (I-5) Freeway. The building was erected 20 years ago as a Royale Inn, then became a Howard Johnson's, then a Ramada Inn, and then a Days Inn. Chicksands spent $2 million refurbishing the building before putting up the Holiday Inn Express banner.

The building may get yet another banner next year. Chicksands is considering connecting the adjacent restaurant to the hotel, a move that will enable the hotel to become a full-fledged Holiday Inn.

Fueling the scramble for flags has been a near street brawl among hotel companies for business. 'Competition is so stiff that if you are selling a room for $50, a competitor will sell at $49,' said Theodorou.

That's being reflected in the price of hotel sales, which fell 5 percent through the nine months of 1993. California's lingering recession and the sale of foreclosed properties contributed to the downturn, said the Hotel & Motel Brokers of America.

Through August, average room rates in Orange County were off 1.5 percent compared with the prior year, according to PKF Consulting.

That competition has meant travelers to Southern California get some of the best hotel bargains in the nation. For hoteliers, it has meant extremely

rely surviving,' Theodorou said.

That may be an exaggeration, but in recent months, at least four county hotels have trudged into bankruptcy court, bearing petitions for reorganizations.

Elsewhere in the country, more lights are coming on in dark hotel rooms, fueling hopes for a recovery that soon will spread to California.

Occupancy at U.S. hotels neared pre-recessionary levels for the first half of the year, according to the recently completed Host Report, a semi- annual publication of Arthur Andersen & Co., the accounting firm.

Average room occupancy rose 1.8 percent, to 62.4 percent in the first half of 1993.

However small, those gains are prompting executives in the $61 billion hotel industry to begin whispering about building again.

Southern California's hotel industry probably was the hardest hit in the nation by the recesssion, said Bill Weatherford, Choice Hotel's regional vice president for development. 'California is recovering ever so slowly,' he said. Enough, though, that the company is considering new construction again in California.

Theodorou won't want to hear that. Showing a visitor a room, he fusses over a lampshade turned so the seam is visible to guests. The current $39 room rate is a 'gimmick' the property can't long sustain, he acknowledges.

But with few experts predicting real recovery in the hotel industry before 1995, can the Holiday Inn Express hold on that long?

'We have to,' he said.