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Thursday, Mar 28, 2024
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Hotel Sales Slump

Compared to the buying binge that peaked in 2005 when San Diego saw 36 properties exchange hands, local hotels have become a hard sell.

“It appears that the fallout from the subprime lending market that has had such a devastating affect on home prices in California is now beginning to impact the commercial property market,” said Alan Reay, who heads the Irvine brokerage Atlas Hospitality Group and authors midyear and annual summaries on hotel transactions and starts.

Statewide, sales dropped 43.5 percent to 100 properties in the first six months from 177 during the like period in 2007. Total dollar volume decreased 39.3 percent to $1.2 billion. The room count dropped 51.3 percent to 9,418, while the median price per room was down 14 percent to $83,370, according to Atlas Hospitality’s report.

San Diego’s numbers looked a bit better, comparatively. Yet it’s hard to pinpoint a trend with so few transactions, particularly since the price tag for the largest hotel was not included in the tally.

During the first half of this year, 11 hotels sold versus nine in the first six months of 2007, the report showed.


Price Leaders

The 125-room Residence Inn by Marriott San Diego Oceanside fetched the highest price, at $19.1 million.

There was no sales figure available for the largest hotel sold, the 317-room Courtyard by Marriott San Diego on Hotel Circle South.

The hotels sold in the first half of this year contained a total of 1,283 rooms, up from 961 in the same period in 2007, while the median per-room price was $89,737 in the first six months, up 9.1 percent from $82,250 in the first six months of 2007.

In 2006 the county logged 33 properties exchange hands, but only 19 sold last year, and the expectation, according to Atlas Hospitality Group, an Irvine brokerage, is that 2008 will wrap up with 15 or 16 transactions.

“The next 12 months are going to be very challenging for both hotel owners and their lenders. If an owner wants to try and sell in this market, then they are going to have to be much more realistic in pricing and will have to forget about what they could have sold for earlier,” Reay said referring to the state as a whole.

His comments could easily have applied to the owners of La Valencia.

La V, as it’s popularly known, an historic 115-room hotel on La Jolla’s waterfront and its sister property, the 54-suite Rancho Valencia in Rancho Santa Fe, went under contract for sale as a package deal early this year to San Diego-based American Property Management Co. But APMC couldn’t get financing, and the owners took the two hotels off the market.

California isn’t alone. The entire nation is experiencing a slump in hotel sales.

Speaking recently at an industry confab in Honolulu, Bob Eaton, executive managing director of PKF Capital said that U.S. hotel transactions had dropped 78 percent since last year. But he said the dark cloud has a silver lining, since there is pent up market investment demand and signs of private capital pools stepping up to fill the void left by the departure of commercial mortgage-backed securities in the wake of the subprime residential lending meltdown.

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