Hotel purchases show weakness during first half of 2022

By GEORGE AVALOS | gavalos@bayareanewsgroup.com | Bay Area News Group
PUBLISHED: September 12, 2022 at 1:30 p.m. | UPDATED: September 13, 2022 at 4:56 a.m.

The Bay Area market for hotel purchases slumped during the first half of 2022 compared to the same period the year before amid inflation woes and fast-rising interest rates.

The total dollar volume for hotels bought in the nine-county Bay Area was $660.5 million, according to research Atlas Hospitality Group provided to this news organization.

That was down 66.8% from the $1.99 billion in hotel purchases during the first six months of 2021, the Atlas Hospitality research showed.

“Interest rates and inflation are increasing, which makes it harder to complete deals,” said Alan Reay, president of Atlas Hospitality, which tracks the California lodging market.

The challenges have arisen despite the easing of COVID pandemic restrictions and a corresponding increase in the number of people traveling. But the hotel market is not alone — rising interest rates and inflation have also plagued the state’s housing and office markets, as well, causing some would-be buyers to reconsider.

It appears that the Bay Area hotel market is considerably weaker than the lodging sector statewide.

During the first six months of 2022, California hotel purchases generated $3.45 billion in transactions, which was a slide of 33.6% from the record $5.19 billion in hotel deals in the first half of 2021, Atlas Hospitality reported.

The average price for hotel purchases in the Bay Area during the first half of 2022 was $16.9 million, which was down 39.6% compared with the first six months of 2021, when the average hotel purchase price was $28 million.

“A lot of owners are just holding on to their hotel properties and waiting to see when there are changes in the market,” Reay said.

With interest rates rising, buyers that need to obtain a loan to finance hotel purchases might be more inclined to press the seller for a reduced price as a way to keep the mortgage costs down.

Hotel sellers, however, might be attempting to capture the same level of profits and rate of return on their investment as was the case in 2021, when the market was more robust and interest rates were far lower.

“You are seeing a gap between the expectations that buyers and sellers have,” Reay said.

The average price per room for hotel purchases was $239,900 in the first six months of 2022, which was down 8.2% from the average price per room of $261,200 for hotels that were bought in the first half of 2021.

Investors bought 41 hotels totaling a combined 3,277 rooms in the Bay Area during the first half of 2022, compared with 71 hotels that encompassed 7,787 rooms in the first half of 2021, Atlas Hospitality reported.

The number of hotels bought was down 42.3% during the first six months of 2022 compared with the same period in 2021. The number of rooms involved was down 57.9% The shift in the rooms involve suggests that the size of the average hotel involved in purchase deals was smaller this year than last year.

“You have hotels in San Francisco and San Jose where the sellers are saying they want the same prices this year that people were getting in 2021,” Reay said.