Foreign Interest in SoCal Hotels Drives Up Values

Foreign Interest in SoCal Hotels Drives Up Values

Foreign Interest in SoCal Hotels Drives Up Values
By Carrie Rossenfeld
SAN DIEGO—Hotels in Downtown L.A., Orange County and San Diego have attracted a lot of interest from overseas investors, creating upward pressure on land values and new hotel development in these markets, Atlas Hospitality Group’s president Alan Reay tells The firm recently released its 2016 mid-year California hotel-development survey. We chatted exclusively with Reay about the survey’s findings and trends in various Southern California hotel markets. What are the most interesting trends happening in the hotel sector in each of the following markets: L.A., Orange County and San Diego?

Reay: All three markets have enjoyed incredible price appreciation over the last five years, so much so that existing older hotels are selling at prices above replacement cost, which has created a huge amount of interest in new hotel construction.

In addition, Downtown Los Angeles and now certain parts of Orange County and San Diego County have attracted a lot of interest from overseas investors, in particular from mainland China, which has created upward pressure on land values for new hotel development in these markets. We are also seeing a number of new trends and brands, such as the AC by Marriott hotel that is under construction in Irvine, and the dual brand of Residence Inn and Courtyard hotels in downtown Los Angeles. How do these three hotel markets tend to differ from each other?

Reay: Los Angeles County is such a huge market with almost twice the amount of hotels as Orange and San Diego counties combined. Each market has its own “sub-markets,” but again, no way near the number of markets that L.A. County has. All three counties compete against each other for convention-center business (L.A., Anaheim and San Diego), and have all been very proactive on expanding their convention centers. In the case of Downtown L.A. and Anaheim, these markets have offered large tax breaks for hotel developers. They all offer great coastlines and beaches and large tourist attractions: Hollywood, Disneyland, Sea World, etc. L.A. and San Diego both have a defined “urban” center, whereas Orange County has no central downtown. What do you foresee for hotel development in the general Southern California region for 2017?

Reay: We are forecasting a continued boom in hotel construction and openings through 2017 and into 2018. What else should our readers know about the Southern California hotel sector?

Reay: It is an excellent barometer of the health of the local and overall economy. Hotels are operating at record revenues and profits, and valuations are now at an all-time record high. Southern California benefits from a diverse economic base; tourism is one of the top economic generators and the reason why hotels are so important to the economy. We are truly an international destination, not only for travelers, but also for investors from around the world who are looking for a safe, secure market to invest in with long-term positive outlook. In short, we are one of the best markets in the entire world for hotel owners and developers.

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