Preliminary work begins at site of Encinitas resort - Luxury hotel plans to charge $400-$600 a night for rooms 

By Mike Freeman 
STAFF WRITER 
August 28, 2002 

ENCINITAS – Despite a slumping travel market, the new owners of La Costa Resort & Spa are moving ahead with a luxury, 126-room hotel here on the bluffs overlooking the beach. 
The $65 million boutique hotel, which has been on the drawing board for five years, will be on North Coast Highway 101 west of the La Costa Avenue junction. Developers aim to charge $400-$600 a night for lodging – bringing an uncommon level of grandeur to the earthy, old California beach community of Leucadia. 
"It probably will be a wonderful addition to the city," said Fred Caldwell, owner of an antiques store on North Coast Highway 101 and a member of the Encinitas-Leucadia Town Council. 
"I hope it doesn't clash too much with the neighborhood," he said. "We try to preserve and enhance what we have here. We discourage change from companies like McDonald's and Jack in the Box . . . But living next door to millionaires never bothered us." 
Sports Shinko, the previous owner of Carlsbad's La Costa Resort, received approval for the oceanfront hotel on four acres in 1997. But the financially troubled company never pursued the project. 
In November, KSL Recreation Corp. purchased the 479-room La Costa Resort for $120 million – well under the $250 million that Sports Shinko paid in 1987. The sale included the Encinitas oceanfront property. 
KSL owns Doral Resort in Florida, the Arizona Biltmore, The Grand Wailea Resort on Maui and a several other top-name resorts. It is pushing ahead with developing the Encinitas property despite stock market declines and travel jitters after Sept. 11, which have the hotel industry in the doldrums. 
Industry analysts expect the hotel slump to linger nationally until 2004. 
S. Chevis Hosea, vice president of land development for KSL, said construction on the hotel itself will start in April. Since the project is expected to take 18 months to complete, KSL thinks the hotel will open just as the travel market rebounds. 
"This is the time when you have to have confidence in the market to make those investments," Hosea said. "I don't know if we would be starting a new resort (from scratch) anywhere but on the beach in Encinitas in Southern California. 
"Today the market may be depressed. But we're projecting in 2004 and 2005, the market will be short on supply" of luxury hotel rooms, he said. 
In addition to building the hotel, called the Encinitas Beach Resort, KSL is investing more than $50 million in its first phase of renovations at the run-down La Costa Resort, including revamping rooms, the spa and the restaurants. More upgrades are expected next year. 
Right now in Encinitas, construction crews from San Diego's Nielson Dillingham Builders – the company working on the new Padres ballpark – are constructing public access improvements on the property. Those upgrades include a stairway from the South Carlsbad State Beach parking lot to the top of the bluff, an overlook area, a public path along the bluff and a gazebo. The work is expected to be completed in 90 days. 
This spring, construction is scheduled to begin on the hotel, which will feature oversized rooms with large decks providing ocean views. 
The project also will include a 7,500-square-foot meeting and event facility, a pool and a restaurant site with views of the surf. Parking will be underground. 
Financing has not been pinned down for the project. KSL may take on outside investors who have expressed interest in the project, Hosea said, which is uncommon for the La Quinta-based company. KSL's financial backing comes from leveraged buyout specialist Kohlberg Kravis & Roberts of New York. 
Room prices at the new property would rank among the highest in San Diego County – well above the $160-$250 a night charged currently at La Costa. 
"This resort goes above that," said Hosea. "It would go toward the Bacara Resort-type market in Santa Barbara or L'Auberge in Del Mar." 

Mike Freeman:

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