What California’s Transactions Dip Means for Owners

What California’s Transactions Dip Means for Owners


What California’s Transactions Dip Means for Owners
The 2016 California Hotel Sales Survey shows hoteliers couldn’t keep up the record pace in transactions last year, but owners are still looking for deals in the Golden State.
By Bryan Wroten



REPORT FROM THE U.S.—With high barriers to entry in the California market and, in some cases, seemingly endless demand, hoteliers have scoured the West Coast, looking for any possible way in. However, after riding years of record transaction numbers, the cycle has caught up with California.

The latest California hotel sales survey by Atlas Hospitality Group shows sales volume decreased by 30% from 2015 to 2016 to $6.6 billion, and Atlas President Alan Reay said he expects that trend to continue through 2017.

“In large part I think it’s because we had such a phenomenal year in 2015, there really was nowhere to go but down,” he said. “It’s unusual to have $9 billion a year for California sales.”

Atlas Hospitality Group has been tracking these figures for 20 years, and Reay said in relation to any other year but 2015, 2016 was still a good year for hotel sales.

“It’s only when you compare it to 2015 does it look a little anemic,” he said. “The average year has about $5 billion in transactions. There were still over 300 hotels trading out. It was still a good year.”

Why the decline
A number of factors led to the overall decline, Reay said. One reason is the valuation on hotel competition and hotel real estate investment trust stocks. The hotels had high valuation and there was a lot of money flowing into the stocks, which the REITs then had to use, and they spent a lot of money chasing hotel deals, which pushed down cap rates, he said.

In the first quarter of 2016, REIT stocks were down 50% on average, Reay said, and became net sellers instead of net buyers. REITs are becoming more active buyers again, but they’re more selective now than they were in the past.

“The REITs were really a major, major factor in pushing up volume and prices,” Reay said. “Anyone else was pulled along.”

The Chinese government has implemented a penalty on companies trying to invest more than $5 million outside of the country, Reay said, and the West Coast was a popular destination for Chinese investments. The U.S. industry has seen six years of record revenue increases, but people are now scaling back their projections and leveling out revenue per available room or forecasting declines. Interest rates are likely to increase again, he said, so lenders are being more cautious…


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