Hotel sales in California fell 22% last year as the industry continued to suffer from a falloff in business travel and tourism, a report found.
Two hundred seven hotels traded hands in 2002, down from 267 in 2001, according to a study by Atlas Hospitality Group, a Costa Mesa hotel broker and consulting firm.
Atlas President Alan Reay attributed much of that drop to weakness in the economically hard-hit Bay Area, where hotel sales plunged 47% and buyers and sellers often were far apart in their views of what hotels were worth.
Many hotel owners borrowed money to hang on to their struggling properties rather than sell at what they thought might be the bottom of the market, Reay said. Many of these owners owe their lenders more than their hotels are worth in the current market.
"People are taking out second and third mortgages on their houses" to pay their hotel loans, he said, "and hold on desperately."
In Southern California, owners of smaller hotels are experiencing a completely different market.
Sellers of hotels in the $5-million-to-$10-million range are getting multiple offers and seeing prices bid up as investors rush to take advantage of low interest rates and real estate's perceived stability and higher rates of returns compared with the stock market since its peak in 2000. Sales were down just 10%.
"A lot of buyers [of Southland hotels] were on the fence after 9/11 thinking they were going to get bargains," Reay said. "They came back into the market in the second half of the year to take advantage of low interest rates. They decided it wasn't going to get any cheaper."
Of less interest to investors are luxury hotels, many of which have suffered in the downturn. They tend to sell only at bargain basement prices, as much as 60% below the cost of new construction.
"It's not a good market for trophy property sellers," Reay said. "Those hotels have really taken a big hit after 9/11, and sellers aren't willing to sell at prices they could get."
Not everything in the Atlas report was gloomy. The median price per room -- a key industry indicator -- rose 16% over 2001, to $52,778. Reay cautioned against reading too much into that figure, however, noting that buyers were willing to pay top-dollar for properties because interest rates are at 40-year lows. Low borrowing costs will allow them to more easily achieve profits, he said.
Among the high-end properties that changed hands last year were Montage Resort & Spa in Laguna Beach, which sold for more than $700,000 a room, far and away the most expensive transaction in the state at $193 million. The Warner Center Marriott in Woodland Hills, went for $69.5 million, or $150,000 a room; and Merv Griffin's Resort & Givenchy Spa in Palm Springs sold for $9.4 million, or $94,000 a room.
"Prices in Southern California are still decent because the market is still decent," said hospitality industry analyst Bruce Baltin, a senior vice president at the Los Angeles office of PKF Consulting. He predicted that California hotel sales would pick up this year.
"It won't be a free fall or anything," Baltin said, "but people have loans coming due and it will be a little harder to refinance. Banks are tired of carrying them."
Hotel revenue has been in the doldrums for two years, Baltin said, but should grow in the months ahead. "Assuming the war is relatively short," he said, "we'll get to some level of normalcy by the second half of the year and you'll see prices and occupancy turning up."