Hotel Sales Strong; Overbuilding Concerns Lurk

Hotel Sales Strong; Overbuilding Concerns Lurk

The Daily Transcript

Hotel Sales Strong; Overbuilding Concerns Lurk
By Thor Kamban Biberman


San Diego County’s hotel market saw a big hike in the number of sales and the overall dollar volume in 2017, according to an Atlas Hospitality Group report.

A total of 29 hotels were sold last year, marking a 38 percent increase from 2016, while the total dollar volume went up by nearly 30 percent to $611.77 million.

The county’s average price per room rose 16 percent year-over-year in 2017, and the median price per room increased by 9 percent to a record $126,510. The median price level was $116,458 in 2016.

The number of sold rooms in San Diego County went up by 10.6 percent from 2,462 in 2016 to 2,723 in 2017.

The median price of a hotel sold in San Diego County decreased slightly from $8.15 million in 2016 to $7.1 million last year.

The 600-room Wyndham San Diego Bayside was the largest sale in terms of the number of rooms. RLJ Lodging acquired the asset as part of its $2.9 billion acquisition of FelCor Lodging Trust.

At $186.5 million, the 329-room Park Hyatt Aviara in Carlsbad was the most expensive sale in San Diego County in 2017. It also led on a price-per-room basis, at $566,869.

The CoStar Group noted that it was not a sale in the traditional sense. Rather, it was a deed-in-lieu of foreclosure action.

This marked at least the second time the property was in trouble. Under the Four Seasons banner, the hotel was stalled for years after running into financial difficulties during a recession in the 1990s.

Neighboring Riverside County saw a 41 percent increase in hotel sales last year. The total dollar volume also increased by about 41 percent year-over-year to roughly $287. 34 million.

At $160 million, the 884-room JW Marriott Desert Springs Resort in Palm Desert was the largest and most expensive sale. The 11-room Hideaway Inn and the 10-room Calla Lilly Inn, both in Palm Springs, sold for $240,000 per room.

Hotel sales in Orange County increased 5 percent from 22 to 23 last year. The total dollar volume dropped 40 percent year-over-year. The county’s average price per room went down 28 percent while the median price per room decreased 5 percent.

In 2017, California hotel sales led the United States in several important categories:
• Highest number of individual sales transactions of any state (369)
• Highest dollar volume in the U.S. ($6.22 billion)
• Highest number of trophy property ($50 million-plus) sales (32)
• The state accounted for more than 58 percent of individual trophy property sales, and recorded the largest number of $1 million-plus-per-room hotel sales.

California set a state record for median price per room at $106,496. The total dollar of $6.22 billion was the fourth highest in the 20-plus that Atlas has tracked the California hotel sales market.

The state continues to attract a tremendous amount of capital from international investors, especially from the Asia/Pacific region.

New hotel investors have been moving from other types of commercial real estate into hotels, apartment building owners for example, according to Atlas.

“California is tops for everything … we’re almost like a second country,” Atlas Hospitality President Alan Reay said.

He conceded that he thought the end of 2017 would be softer than it was. That said, he does have his concerns.

“The things we are watching are oversupply, increasing interest rates, and the cost of labor — which is $15.20 per hour,” Reay said, adding that while hotels continue to be a good investment, it pays to be cautious.

As for supply, California opened nearly 11,000 new hotels rooms in 2017, setting a record, according to Atlas.

The firm found that 16 hotels, representing 2,823 rooms, are under construction in San Diego County. The largest is the 400-room InterContinental Hotel being constructed on the Lane Field property along the North Embarcadero.

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