Atlas report paints grim picture for hotel industry

San Diego Daily Transcript
Wednesday, September 2, 2020
By Thor Kamban Biberman

Photo courtesy of CoStar: The DoubleTree on Hotel Circle South in Mission Valley.

The California hotel sales market has suffered the steepest decline in sales on record due to the COVID-19 pandemic, according to Atlas Hospitality Group, and it may not be getting better anytime soon.

The number of San Diego County hotel transactions in the first half of this year was 10, one more than a year ago, but that doesn’t begin to tell the whole story.

San Diego’s dollar sales volume in the first half of 2020 plummeted 69.8 percent year-over-year to $99.39 million, according to Atlas. In normal years, there are often single hotel sales that exceed the $100 million figure.

From April 1-June 30, San Diego’s individual sales declined 80 percent year-over-year, total dollar volume of sales dropped 97 percent, and the most expensive transaction was the $27.3 million sale of the 183-room Kimpton Hotel Palomar, Atlas reported.

There were just 577 rooms involved in San Diego County hotel sales in the first half of this year compared with 1,369 in 2019. That represented a 57.6 percent decline.

The average price per room declined 29.2 percent year-over-year from $228,363 in the first half of last year to $161,579 in the first half of 2020.

“I think it’s kind of self-explanatory,” Atlas Hospitality Group president Alan Reay stated. “Everything just fell off a cliff.”

Reay said it is almost impossible to value a hotel under such circumstances.

“It’s a real struggle for appraisers,” he said.

Reay said with a large number of hotels closed and occupancies and room rates at record lows, no one has ever experienced a market like this before. With so few sales, lenders, appraisers and, more importantly, buyers are struggling like never before on where to value hotels today.

While conventional lenders are working with their hotel borrowers and deferring loan payments, Reay said those using commercial mortgage-backed securities (CMBS) are experiencing a record number of hotels in default.

“We are forecasting that 2020 will be the worst year on record for hotel sales and the longer this pandemic continues, it will be a very long uphill battle to recovery and a ‘stable’ market,” Reay said, adding that if there is anything positive about the market, it’s that hotels aren’t going to get overbuilt in this climate.

What’s not good, however, is there are at least eight San Diego hotels in default on their CMBS loans and may be in danger of eventual foreclosure, according to Atlas.

One hotel here, the DoubleTree on Hotel Circle, was the subject of a UCC (Uniform Commercial Code) foreclosure auction as a result of a default on a mezzanine loan last December — months before the explosion of the coronavirus.

As expected, the pandemic has had a huge negative impact on both the number and dollar volume of hotel sales statewide through the first half of 2020.

Through June, the number of individual hotel sales in California declined by 21 percent, while total dollar volume was down by more than 53 percent, Atlas reported. The median price-per-room of a California hotel sale dropped by 13 percent year-over-year.

“If we take a closer look at the ‘post-COVID’ period [from April 1-June 30] and compare that with last year, the results are staggering,” Atlas reported.

For those three months, the dollar volume of sales fell 82 percent, the total number of individual sales dropped almost 45 percent, and the median price per room declined by 22 percent, the hospitality industry firm stated.

While most of California’s hotel sales were less than $50 million during the first half of the year, there were a couple of exceptions. One was the 355-room Hilton San Jose, which sold for $117.55 million. and the 490-room Sheraton Hotel at the Park, Anaheim, which sold for $52.5 million.

thor_biberman@sdtranscript.com

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