In NorCal, volume totals $1.45B as investors take “wait-and-watch” stance to hospitality

FEB 7, 2024, 11:36 AM | By TRD Staff

The hotel market in California has tumbled down the laundry chute.

The overall money spent to buy hotels across the Golden State fell 56.3 percent last year, as investors waited along the sidelines of the lodging sector, the San Jose Mercury News reported, citing figures from consultancy Atlas Hospitality Group.

Measured by dollars, California hotel deals totaled a combined $3.76 billion last year, compared with $8.6 billion in 2022. 

In Northern California, acquisitions of hotels last year plunged by 48.3 percent, and by 60.2 percent in Southern California.

The decline in sales is because hotel buyers stayed out of the market at a time of economic uncertainty and murky prospects for the lodging sector, according to Alan Reay, president of Irvine-based Atlas Hospitality.

“Most investors are in a wait-and-watch situation,” Reay told the Mercury News.

Last year, Northern California hotel purchases totaled $1.45 billion, down from $2.8 billion in 2022.

The biggest deals included $163 million paid for the 276-room Claremont Hotel Club & Spa in the Oakland and Berkeley market; $73.1 million paid for the 264-room Signia by Hilton South Tower in Downtown San Jose; and $68.5 million paid for the 221-room Hotel Zoe in San Francisco.

In May, Redwood City-based Ohana Real Estate bought the 108-year-old Claremont Hotel for $590,580 per room.

In October, Mill Valley-based Throckmorton Partners bought Signia’s South Tower for $276,894 per room, with plans to convert it into student housing for San Jose State University.

At the same time, EOS Investors bought the Hotel Zoe Fisherman’s Wharf for $310,000 per room.

Last year, Southern California hotel purchase deals had a value of $2.31 billion, down from $5.8 billion in 2022.

The hotel sector hasn’t completely recovered from lockdowns during the 2020 pandemic. Financial headwinds caused some hotels to slide into foreclosure. In other cases, hotel property owners gave the keys to their lenders.

Reay predicted the hotel market in the Bay Area and statewide could become worse before it gets better.

“If interest rates come back down, then we will see sales activity pick up and values will stabilize or move up,” Reay said. “If interest rates do not decline, we may start to see more distressed sales. That will create downward pressure on values.”

— Dana Bartholomew