California Sees Drop in Hotel Sales, Prices, Survey Says
The number of hotels sold in California -- and the prices they fetched -- fell sharply during the first half of this year as investors retreated from an industry still feeling the effects of last year’s terrorist attacks, according to a survey to be released today.
Hotel sales fell 18% to 100 in the January-to-June period from 122 sales in the year-earlier period, and the average sale price dropped 17% to $4.7 million, said Alan Reay, president of Atlas Hospitality Group, a Costa Mesa hotel broker and consulting firm.
The downturn is caused in large part by a disagreement in hotel values between buyers and sellers, Reay said.
“Many sellers believe the value of their properties should be based on the revenues they were generating before the Sept. 11 terrorist attacks,” he said, noting that revenue had begun to slip even before the attacks and still haven’t recovered to 2000 levels.
That’s reflected in the average per-room sales price -- a key measure of the industry’s health -- which fell 4.7% to $56,350, Reay’s survey found. The average size of hotels sold during the period was 85 rooms, up 11% from 77 rooms a year earlier.
Falling interest rates also have helped prevent some sales, said Jim Butler, chairman of the global hospitality group at Century City law firm Jeffer, Mangels, Butler & Marmaro. Some hotel owners in financial trouble have been able to avoid foreclosure by financing their debts at lower interest rates and retaining their properties.
“A lot of people saw the recession of 2001 and 9/11 and predicted a tidal wave of hotel failures,” Butler said. “It has been a trickle, a fraction of what many people expected.”
The first-half sales downturn was especially acute in the Bay Area, where the hotel industry has been dragged down by the dot-com collapse and falling tourism.
The number of hotels sold in Northern California fell 24% to 25 properties as the average price per room slipped 1.8% to $68,431. The Courtyard by Marriott San Francisco sold for $76.2 million, or $188,101 per room, which also was the highest recorded sale in the state.
Some struggling San Francisco hotel owners will be anxious to sell within six months to a year, but they may have difficulty finding buyers because occupancy levels and rental revenue still are shrinking, Reay said.
“When you have a falling market like that, it’s hard to sell assets because investors don’t know where the bottom is,” he said.
The number of hotel sales in Los Angeles County fell 21% to 26 properties during the first half of the year, and the average price per room dropped 10.7% to $45,057. The largest hotel sold during the period was the 770-room Furama Hotel Los Angeles, whose sales price could not be determined. After that, the largest recorded sale was the 393-room Hilton Long Beach, which sold for $38 million, or $96,692 per room.
Orange County bucked the trend as investors continued to bet on that region’s long-term tourism and convention business, Reay said.
Hotel sales doubled to 16 properties, and the average price per room soared 50% to $63,625. Among the sales were the 180-room Holiday Inn Orange County Airport in Santa Ana, which fetched $12.1 million, or $67,222 per room, and the 39-room La Casa del Camino in Laguna Beach, which sold for $5.3 million, or $134,615 per room.
All told, sales of California hotels probably will total less than $1 billion in 2002, compared with $1.3 billion last year and a record $2.6 billion in 1998, Reay said.
The business, however, is still profitable, although final receipts are expected to be less than last year’s $16.2 billion nationwide, Butler said.