Orange County Register
08/16/16

‘Taking a Breather’: Hotel Market Cools
By Hannah Madans

http://www.ocregister.com/articles/year-725957-percent-sales.html

Hotel sales volume was down 56 percent in California the first half of this year as buyers and sellers retreated from the market, according to Atlas Hospitality, an Irvine-based real estate firm.

Orange County was a bright spot as hotel sales were up 27 percent.

“Sales are way down year to date, but that’s not a surprise to us,” Atlas President Alan Reay said. Last year “was a record-breaking year for sales transactions, and we did expect to see a decline, but we didn’t predict this large of a decline.”

Plummeting hotel stock contributed largely to the plunge, Reay said, as publicly traded hotel groups were no longer buying and became sellers.

“We had a lot of inventory in the first quarter and not a lot of buyers. A lot of uncertainty in the marketplace, people thinking we might have peaked. Buyers were very cautious,” he said.

Reay added that the second quarter of the year was better than the first.

“The market is taking a breather, and people are looking at 2016 as a year where we might see where the direction hotels are going,” Reay added. “We also have a lot of new development going on and people are watching that very carefully in terms of how it will affect occupancy and profitability.”

Other statewide highlights from Atlas’ half-year survey:

• Statewide, transactions fell 17 percent.

• Northern California transactions were down 32 percent.

• Southern California transactions were up 1 percent.

• The median price per room was up 11.3 percent, far below the 25 percent increase seen last year.

• The Vintage Estate in Napa County’s Yountville sold for $197 million, the most expensive transaction so far this year.

Orange County highlights:

• Sales were up 27 percent (14 from 11).

• Volume dropped 83 percent ($124 million from $749 million).

• Median price per room dropped 35 percent.

• The Crowne Plaza Costa Mesa sale for $37.5 million was the most expensive transaction.

Like the state, Orange County’s hospitality industry had a record-breaking 2015. Approximately $1.4 billion was spent on hotel purchases in Orange County, according to Atlas.

Eight hotels were under construction, while four opened by the end of the year, according to the firm.

Highlights last year include the January sale of the 250-room Montage Laguna Beach, which was bought for $360 million in the biggest hotel sale in California’s history.

Then in September, the Montage and the 393-room Ritz-Carlton, Laguna Niguel got a new owner when the Blackstone Group, which owns the Motel 6 budget hotel chain, bought its parent company, Strategic Hotels & Resorts Inc., for roughly $6 billion.

The high purchase amount drove the high sale numbers seen by the end of the year. (The two local hotels were again part of a hotel group deal this year.)

This year, most buyers are purchasing 30-100 room hotels, according to Reay.

The drop in median price per room is “not a true reflection of what’s happening,” according to Reay. “It’s more a reflection of assets like the Montage being sold last year.”

Reay predicts that by year’s end, sales volume will be off 20 percent in the state.