BY SANDI CAIN
The hotel market is sizzling again.
Last year, 320 California hotels were sold, worth $2.2 billion, according to Costa Mesa-based Atlas Hospitality Group.
That’s up from 267 sales worth $1.8 billion in 2003.
The number of hotels sold last year set a record, according to Alan Reay, the president of Atlas Hospitality.
“That’s well past the performance in 2000,” he said.
In Orange County, 35 hotels changed hands last year, up from 29 a year earlier. Last year’s sales were worth $414 million, nearly three times the value of 2003’s sales.
The largest sale in Orange County last year was the 489-room Irvine Marriott, which went for $92.5 million. Arlington, Va.-based Meristar Hotels & Resorts acquired the hotel from Irvine-based Cigna Hotel Associates, part of Cigna Corp.
The sales boom is driven in part by a lack of hotel building. Lenders have been uneasy about financing new hotels since the industry downturn of 2001.
Nationally, 122 hotels with 16,000 rooms opened nationwide in 2004, according to Portsmouth, N.H.-based Lodging Econometrics.
Orange County is set to see some building this year, led by the 252-room Doubletree Guest Suites set to open in Anaheim in the fall. The other projects are midscale and extended stay hotels.
Less building has meant better profits for hotels, making them attractive buys for real estate investment trusts and institutional investors, especially while interest rates still are low.
Atlas Hospitality, which brokers hotel sales, did nearly a third more business in 2004 than 2003, according to Reay.
The mix included more full-service and boutique hotels, rather than the midscale hotels more typical of the last few years.
Atlas added workers to handle the workload and may have to seek larger quarters if growth keeps pace, Reay said.
Deals are pending in Orange County, San Diego, the Inland Empire, Napa Valley, Sacramento and San Francisco, he said.
Larry Broughton, a former executive with San Francisco-based Joie de Vivre Hotels, launched Huntington Beach-based Broughton Hospitality five years ago to buy boutique-style hotels.
Now Broughton said he’s looking at a broader range of hotels to buy. Broughton’s revenue last year doubled to $11.2 million, he said.
Broughton is looking for what he calls “underperforming independent hotels.”
The company owns hotels in Santa Barbara, Palm Desert, Huntington Beach, Solvang, Santa Monica and Puerto Vallarta. A bed and breakfast is slated to open this fall in Clear Lake in Northern California.
Broughton said he hopes to buy as many as four hotels this year.
“We’re approached by brokers almost daily,” he said.
The company is working on possible buys in Orange County, Palm Springs and Santa Barbara, Broughton said. Some are unsolicited offers, he said.
“I’ve always been bullish on Orange County,” Broughton said. “But finding property is difficult.”
“Hotels and resorts are the flavor of the month,” said Don Wise, a former CB Richard Ellis Group Inc. executive who now runs Resorts, Estates and Vineyards Inc. in Napa Valley. “It’s hotter now than in 1999 and 2000.”
Wise’s company used to be Wise Hotel Investments in Corona del Mar before moving to Napa in 1999. He still has a Corona del Mar office.
The company works with developers on hotel projects and brokers sales.
In the past year, Wise said he handled the sale of a parcel for hotel or time-share development in Anaheim. In Arizona, he said he found a venture partner for former savings and loan executive Charles Keating on the $33 million redevelopment of the Doubletree Las Posadas Resort in Paradise Valley near Scottsdale.
Wise said he sold four resorts last year, all for more than $10 million. This year, he said he expects to equal or better that pace.
The trend in hotel projects, according to Wise: some sort of housing.
And it’s not just time shares. Projects include condominiums at a hotel or even traditional houses. Some projects offer lots for custom homes with access to hotel services.
“Every project (we’ve worked on) for the past two years has turned into a hotel with some sort of residential component,” Wise said.
The St. Regis Monarch Beach and Montage Resort & Spa in Dana Point have adjacent homes.
One thing that hasn’t changed with hotel sales is the gap between what buyers are willing to pay and what sellers hope to get, according to Atlas’ Reay. The gap is narrowing, he said, but still is wide in places such as Santa Barbara and Laguna Beach.
Blame it on Ty Warner, the chief executive of Ty Inc., maker of Beanie Babies, Broughton said. After making a fortune on plush toys, Warner now owns luxury hotels.
“Ever since Ty Warner came into the market, everyone thinks they’ll get $400,000 per room,” Broughton said.
Warner, who lives in Montecito, owns the Four Seasons Biltmore and four other Santa Barbara-area hotels. He recently said he plans to buy the Miramar Hotel there for an estimated sales price of $45 million.
Unrealistic expectations are just one caveat that could cool a sizzling market.
Higher insurance costs, union activity and travel restrictions on international visitors also could be factors, according to Ernst & Young LLP’s annual lodging survey.
Sandi Cain writes for the Orange County Business Journal.
