Market for Hotel Properties Heats Up

Two large Los Angeles County hotel properties have traded hands and a third has hit the market as the region experiences a spate of hotel sales.

Vivendi Universal’s entertainment division has sold the Sheraton Universal Hotel and the ground under the nearby Hilton Universal City & Tower to separate buyers. A few miles away in Hollywood, the developer of the Hollywood & Highland retail and theater complex has put the adjoining Hollywood Renaissance Hotel up for sale.

Chicago real estate investment fund Walton Street Capital paid $49 million, real estate sources said, for the 436-room hotel built by Universal in 1968 next to its studio and theme park. Vivendi Universal also sold the ground under the nearby Hilton to Tarsadia Hotels for $24 million. The 485-room Hilton is separately owned by Sunhill Corp., a subsidiary of Taipei, Taiwan, manufacturer Tuntex.

Among Walton Street Capital’s properties is Union Bank Plaza in downtown Los Angeles. Costa Mesa-based Tarsadia owns several Southern California hotels, including the Anaheim Marriott, Givenchy Resort & Spa in Palm Springs and the Hilton Checkers in Los Angeles.

Kevin Dretzka, senior managing director of Eastdil Realty, acknowledged that he represented Vivendi in the hotel sales but said a confidentiality agreement prohibited him from commenting on the transaction.

The Hollywood Renaissance Hotel opened in December 2001 at the Hollywood & Highland entertainment center after a $130-million expansion and renovation of a former Holiday Inn on Highland Avenue by developer Trizec Properties Inc.

Trizec spokesman Rick Mathews declined to state how much the company is asking for the property, but real estate industry sources said the Chicago real estate investment trust hopes to snare more than $100 million for the four-star hotel with 637 rooms and 50,000 square feet of meeting space.

The market will value the hotel on its potential income, Mathews said, which should grow once the economy improves and tourists return to Hollywood.

Hotel consultant Alan Reay, however, said the hotel is probably worth about $60 million, based on its average 60% occupancy and the recent sale prices of comparable hotels including the Sheraton Universal.

“I don’t think anyone could say that it is a seller’s market,” said Reay, president of Atlas Hospitality Group, a Costa Mesa hotel broker and consulting firm. Occupancy and room rates are depressed, especially at higher-end hotels. Nevertheless, he said, there has been a wave of institutional owners selling big trophy assets. Among the active sellers are real estate investment trusts that snapped up hotels during a 1998 growth spurt among REITs.

Hotels are trading at a heavy discount to what they could have garnered two or three years ago, Reay said, and buyers are typically “opportunistic” investment funds that look for properties that can be improved and resold at a higher price.

Prices are down because the hospitality industry was hit especially hard when the economy stalled in 2001. The Los Angeles area has stabilized better than most hotel markets, Reay said. Occupancy is down only slightly from last year, he said, though downtown Los Angeles remains soft.

One large downtown hotel, the Hyatt Regency Los Angeles, also is on the market. Girec Corp., a division of Tokyo-based Mizuho Trust, is asking $125 million for the 485-room hotel and an adjoining office and retail complex known as Macy’s Plaza, according to Reay. Girec bought the property that fills a block in the financial district for $210 million in 1987.

Meanwhile, Holiday Inn hotels in Santa Monica and at Los Angeles International and Long Beach airports have been put up for sale by California investment group NAHOP Partners.