July 30, 2025

Transaction volume declines while dollar values rise amid continued buyer-seller disconnect

California’s hotel sales market presented a complex and often contradictory picture in the first half of 2025, with fewer transactions but higher total dollar volumes driven significantly by distressed property sales, according to Atlas Hospitality Group’s comprehensive mid-year survey released this week.

The state recorded 113 individual hotel transactions through June 2025, representing a 7.4 percent decline from the 122 sales during the same period in 2024. However, total dollar volume surged 17.3 percent to nearly $1.4 billion, creating an apparent contradiction that industry experts attribute to a handful of large-scale transactions and the continuing bifurcation of the hospitality investment market.

This divergence between transaction count and dollar volume reflects a market where high-value properties—particularly those in distress—are driving overall activity while smaller deals become increasingly scarce amid tightened lending conditions and persistent valuation gaps between buyers and sellers.

Foreclosures Reshape Market Landscape

The most striking and concerning trend in the data was the prevalence of foreclosure sales among the year’s largest transactions. The biggest hotel sales in three major counties—Los Angeles, Alameda, and Santa Clara—were all lender-driven foreclosures, collectively accounting for $218.18 million and representing 15.7 percent of the state’s entire hotel sales volume for the six-month period.

The largest single transaction was the foreclosure sale of the 541-room Signia Hotel in San Jose for $80 million, a property that had struggled with debt service in the post-pandemic recovery period. Other major distressed sales included the 500-room Marriott City Center in Oakland, which sold for $70.18 million, and the 397-room Line Hotel in Los Angeles, which fetched $68 million.

These foreclosure sales highlight the ongoing financial stress facing some hotel operators who took on significant debt during the pre-pandemic boom years and have struggled to service those obligations amid changed operating conditions. The prevalence of such sales also suggests that more distressed properties may come to market in the coming months.

“We are seeing an increase in notices of default and foreclosures in certain markets, which is putting additional downward pressure on sales prices,” the Atlas Hospitality Group report noted, highlighting how these distressed sales are reshaping market valuations and creating new benchmarks for property pricing.

The impact of these large foreclosure sales extends beyond their immediate dollar volumes. They establish new pricing precedents that influence valuations across entire markets, often creating downward pressure on comparable properties and making it more difficult for sellers to achieve previously expected price levels.

Regional Performance Reveals Market Fragmentation

The impact of changing market conditions varied dramatically across California’s diverse regions, revealing a highly fragmented landscape where local economic conditions, tourism patterns, and property types create vastly different outcomes.

Northern California experienced the most dramatic swings, with dollar volume surging 70.2 percent despite only a modest 3.2 percent increase in transaction numbers. This outsized performance was largely driven by the major foreclosure sales, particularly in the Bay Area, where high property values meant that even distressed sales generated significant dollar volumes.

Southern California, traditionally the state’s most active hotel transaction market, experienced a more sobering reality with an 18.3 percent decline in transactions and a 14.8 percent drop in total dollar volume. This contraction reflects both the challenging operating environment in key markets like Los Angeles and Orange County, as well as the impact of higher interest rates on buyer activity.

County-by-County Analysis Reveals Diverse Fortunes

Los Angeles County emerged as a relative bright spot in an otherwise challenging environment, with transactions increasing 12.5 percent to 18 deals and dollar volume rising 14.5 percent to $243.3 million. Perhaps more encouraging, the median price per room rose 6.5 percent to $168,976, suggesting underlying market strength despite broader industry challenges. The county’s performance was anchored by the $68 million foreclosure sale of the Line Hotel, but also included several voluntary transactions that demonstrated continued investor interest in quality Los Angeles properties.

San Diego County posted the strongest performance among major markets, with transactions up 16.7 percent and a remarkable 113.8 percent surge in dollar volume to $208.4 million. This performance was anchored by the $79.34 million sale of the 280-room Residence Inn La Jolla, which represented both strong demand for extended-stay properties and the premium that San Diego’s coastal location continues to command. The county’s median price per room increased 3.9 percent, reflecting the market’s resilience.

Orange County demonstrated the market’s volatility, with transactions doubling from three to six deals but dollar volume declining 43.1 percent to $72.4 million. This apparent contradiction reflects a shift toward smaller properties, with the largest sale being the 120-room Travelodge in Costa Mesa for $22.6 million. The median price per room fell 24.6 percent, suggesting significant pricing pressure in the county’s hotel market.

San Francisco County showed signs of recovery with transactions increasing 150 percent to 10 deals and dollar volume surging 332 percent to $156.4 million. The most expensive sale was the 316-room Hyatt Centric San Francisco for $80 million, demonstrating continued investor confidence in the city’s long-term tourism prospects despite ongoing challenges with business travel and convention activity.

Several counties experienced significant contractions that highlight the market’s challenges. Sonoma County suffered the steepest decline, with individual sales plummeting 77.8 percent to just two transactions and dollar volume collapsing 92.7 percent to $3.3 million. The county’s largest sale was the modest 27-room Redwood Inn & Trailer Park in Santa Rosa for $2.6 million, reflecting both reduced investor interest and limited quality inventory.

Riverside County also struggled significantly, with transactions down 60 percent and dollar volume falling over 50 percent, though the median price per room actually increased 101 percent due to the small sample size and mix of properties sold.

Pricing Pressures Reveal Market Stress

Despite the higher total transaction values driven by large-scale sales, underlying pricing metrics revealed significant market stress and the challenges facing hotel owners and investors.

The statewide median price per room declined 2.5 percent to $145,566, while the average price per room fell a more substantial 16.4 percent to $149,766. This significant divergence between median and average pricing suggests a highly bifurcated market where a few high-value transactions are masking broader pricing pressures across the majority of deals.

For transactions above $5 million—typically considered institutional-quality properties—the dynamics were somewhat different. While the number of such transactions declined 7.5 percent, the average price actually increased 82 percent to $20.6 million, reflecting the concentration of large foreclosure sales in this category. However, even in this segment, the median price per room increased only marginally by 1.2 percent, suggesting that the pricing gains were concentrated in a small number of properties.

The pricing pressures are particularly evident when examining historical trends. California’s hotel market had experienced steady price appreciation through much of the past decade, but the current data suggests this trend has stalled or reversed in many markets.

Economic Headwinds Shape Investment Climate

The challenges facing California’s hotel sales market reflect broader economic headwinds that have fundamentally altered the investment landscape for hospitality properties. Rising interest rates, which have increased from near-zero levels during the pandemic to current levels above 5 percent for many commercial real estate loans, have dramatically increased the cost of acquisition financing.

This rate environment has been particularly challenging for hotel investors, who often rely on significant leverage to achieve target returns. Many potential buyers have been priced out of deals or have significantly reduced their acquisition activity, contributing to the decline in transaction volume.

Simultaneously, hotel operators are facing unprecedented cost pressures that are eroding property values. Labor costs have surged as the hospitality industry competes for workers in a tight employment market, with many properties reporting wage increases of 15-25 percent compared to pre-pandemic levels. Insurance costs have also spiked, with some properties seeing premium increases of 30-50 percent due to both broader insurance market conditions and hospitality-specific risks.

Energy costs, property taxes, and other operational expenses have also increased substantially, creating a challenging operating environment that makes it difficult for hotel owners to generate the cash flows necessary to service debt or justify high acquisition prices.

Distressed Sales Signal Broader Industry Challenges

The prominence of foreclosure sales in the market’s activity represents more than just isolated financial difficulties—it signals broader structural challenges facing the hotel industry as it continues to adapt to post-pandemic realities.

Many of the properties now in distress were acquired or refinanced during the period from 2019-2021, when hotel values were at historic highs and debt was readily available at low interest rates. As these loans mature or face covenant violations due to reduced cash flows, owners are finding themselves unable to refinance or sell at prices sufficient to cover their debt obligations.

The foreclosure of the Signia Hotel in San Jose, for example, likely reflects the challenges facing large convention hotels in markets where business travel has not fully recovered to pre-pandemic levels. Similarly, the Marriott City Center foreclosure in Oakland may reflect the broader challenges facing urban hotels in markets where downtown office occupancy remains depressed.

These distressed sales are creating opportunities for well-capitalized buyers who can acquire properties at significant discounts to replacement cost. However, they are also establishing new pricing benchmarks that are pressuring valuations across entire markets, creating challenges for owners who need to refinance or sell properties that are not in distress.

Market Outlook and Industry Implications

Looking ahead, several factors suggest that the current market dynamics are likely to persist through at least the remainder of 2025 and potentially into 2026.

The Federal Reserve’s monetary policy stance suggests that interest rates will remain elevated for the foreseeable future, continuing to constrain buyer activity and making it difficult for many potential purchasers to achieve target returns. This is likely to keep transaction volume below historical norms and maintain pressure on pricing.

The wave of loan maturities facing the hotel industry—with an estimated $50 billion in hotel debt nationwide coming due over the next three years—suggests that additional distressed sales are likely. Properties that cannot generate sufficient cash flow to support refinancing at current interest rates may face foreclosure or distressed sale situations.

However, there are also reasons for cautious optimism. Hotel operating fundamentals in many California markets remain relatively strong, with occupancy and average daily rates in most regions approaching or exceeding pre-pandemic levels. The state’s diverse economy, strong tourism appeal, and limited new supply in many markets provide a foundation for long-term value creation.

Additionally, the current pricing pressure may create attractive entry points for patient capital that can weather short-term challenges. Institutional investors with longer investment horizons and access to patient capital may find opportunities to acquire quality properties at attractive valuations.