Activity during H1 2023 is biggest plunge since the Great Recession.

By Jack Rogers | August 18, 2023 at 06:03 AM

Sales activity for the hotel markets in California imploded in the first half of this year at a pace that seems even worse than the collapse experienced during the Great Recession of 2008 and 2009.

The number of hotels sold in California dropped during H1 2023 by 52.9% compared with the first half of 2022, according to a new survey from Atlas Hospitality Group, the Irvine-based firm that has been tracking statewide lodging for more than 20 years, according to a report in SiliconValley.com.

The nadir in 2009 for hotel sales in the Golden State was a plunge of 51%. “We’ve have seen nothing like this, nothing this bad,” Allan Reay, president of Atlas, told SiliconValley.

The cliff dive was spread across areas of Northern and Southern California. Northern California saw an H1 plunge of nearly 45% in individual hotel sales, with 62 hotels sold in NoCal in the first half of the year compared with 112 during the first half of 2022, Atlas reported.

Southern California saw a swan dive of nearly 59%–SoCal matched the total in the north of 62, but this was compared to 151 hotel deals in the first half of 2022.

Some of the largest hotel deals in California in the first half of 2023 involved foreclosure sales in which a lender took back a hotel.

The lender for the Fairmont Century Plaza acquired the hotel for $760M in a foreclosure of a delinquent loan; the 135-room Hotel Huntington, on San Francisco’s famous Nob Hill, was acquired for $29.3M in a deal that was preceded by an investing group taking over the loan and finally taking ownership through a foreclosure deed, SiliconValley reported.

There were two hotel deals in Alameda County in the first half, the largest the sale of the 276-room Claremont Hotel in the area bordering Oakland and Berkeley for $163M. Also sold was the Springtown Inn, a 125-room lodging in Livermore.

The two deals in Santa Clara County included the sale of the 89-room Arena Hotel in downtown San Jose for $22.9M and the sale of a 51-room Comfort Suites at San Jose Airport for $6M.

In June, Park Hotels & Resorts on Monday announced it stopped making payments on a $725M CMBS loan backed by two of the largest hotels in San Francisco in order to pave the way for a divestiture of the properties.

The sister hotels, which sit side-by-side on O’Farrell Street, are the 1,921-room Hilton San Francisco Union Square—the city’s largest hotel, also the largest Hilton on the West Coast—and its neighbor, Parc 55, which with 1,024 rooms is the fourth-largest lodging in the city.

The two hotels were valued at a combined $1.56B when the CMBS packaged for them was issued in 2016 by JPMorgan Chase. The loan was not delinquent: until the announcement, Park has been up to date on its $2.5M monthly debt service payments, the San Francisco Business Times reported.

In February, Park said it was “confident” it could work out a refinancing plan with JPMorgan on the $725M debt, which comes due in November. In the June announcement, Park CEO Thomas Baltimore said that the company had determined that the prospects for a recovery in San Francisco did not look bright and the company plans to divest the two properties.