Project Homekey Makes up Most of California’s Hotel Sales
Project Homekey Makes up Most of California’s Hotel Sales
IRVINE, Calif. — Gov. Gavin Newsom’s Project Homekey accounted for $890 million of hotel sales in California last year, reviving what would have been a paltry year in terms of hotel transactions in the state.
While sales of hotels across the nation sagged due to the coronavirus pandemic, California was the only state to record an increase in the number of hotel transactions year-over-year, said Alan X. Reay, president of Atlas Hospitality Group.
“Project Homekey helped hotel owners that were looking to sell last year but had no other takers at the prices they were expecting, which is where Project Homekey stepped in,” Reay told Spectrum News. “Without Project Homekey, California would have seen 26% less individual hotel sales and 61% less in total dollar volume.”
What You Need To Know
- Hotels sold using the state-sponsored Project Homekey accounted for $890 million in hotel sales last year
- California was the only state in the nation to record an increase in the number of hotel transactions year-over-year
- Gov. Gavin Newsom launched Project Homekey as a way to house the homeless and those at-risk of homelessness by converting hotels and other buildings into interim, permanent, and supportive housing
- Newsom has set aside $750 million in the state’s budget to expand the Project Homekey program in 2021
With little to no domestic and international tourism, the coronavirus pandemic devastated the hotel industry nationwide. Many hotels closed, and plenty of rooms sat empty for most of the year. Hotel owners had to work with their lenders to prevent bankruptcy or foreclosure, Reay said.
According to Atlas Hospitality’s annual California Hotel Sales Survey, last year, the total number of hotels that traded hands in the U.S. dropped by 52% year-over-year. Sales of hotels in New York, Texas, and Florida were down 62%, 54%, and 48%, respectively, from the previous year.
California was the only state to record a year-over-year increase in hotel transactions, thanks in large part to Project Homekey. Aside from Project Homekey hotels, several big named hotels traded hands in Southern California. The 116-room Viceroy L’Ermitage Beverly Hills in Beverly Hills sold for $100 million. In Newport Beach, the 532-room Newport Beach Marriott Hotel & Spa was the largest hotel sold in 2020 and the most expensive hotel at the price of $216 million, the report states.
Newsom launched Project Homekey in June to house the homeless and those at risk of homelessness during the midst of the coronavirus pandemic by converting hotels, apartments, and other buildings into interim or permanent and supportive housing.
Newsom used $600 million from the Coronavirus Aid Relief Funds and state funds before awarding the money to local municipalities to acquire hotels and other buildings. Los Angeles County received $247.4 million from the state. The state awarded Orange County $23 million and Riverside and San Bernardino counties about $13 million each.
“Homekey is a once-in-a-generation opportunity to massively expand housing for the homeless in California with federal stimulus funds,” Newsom said in a July news release. “This unique opportunity requires us to move quickly, in close collaboration with our city and county partners, to protect the most vulnerable people in our state.”
The program has been significant. It has successfully housed people experiencing homelessness and those at-risk and helping cash-strapped hotel owners.
“For existing hotel owners, it is good, as they are receiving retail prices for their properties, as opposed to dealing with a lot of the ‘distressed’ hotel buyer’s in the market,” Reay said. “Secondly, it is taking a lot of supply out of the market, so existing hotel owners should be able to receive higher room rates as the market recovers.”
The program is not without fault. There have been reports of mismanagement and inexperience with caring for residents living in these converted hotels. Also, no one is quite sure what kind of an effect these Project Homekey hotels will have on neighboring hotels and their values.
Still, Newsom will continue to move forward with plans to buy more hotels and other property types to convert into permanent housing for the homeless. Newsom’s proposed budget has set aside $750 million for round 2 of Project Homekey.
