Will California hotels get back to normal? This expert says yes
Will California hotels get back to normal? This expert says yes
“The amount of interest that we’re now receiving from buyers is incredible. In some respects, it’s as if COVID never happened,” says Alan Reay.
Alan Reay, at his offices in Irvine, CA in front of a sign from a refurbished motel, is the founder and president of Atlas Hospitality Group. (Photo by Paul Bersebach, Orange County Register/SCNG)
Like so many people, Alan Reay can’t wait to check-in, again.
Reay is president and founder of Atlas Hospitality Group, an Irvine-based broker of California hotel sales. In the year since the COVID-19 outbreak, his travel plans were upended, with trips and conferences canceled or put on hold.
After several decades as a top-producing hotel broker, the Brit who calls Newport Beach home founded Atlas Hospitality Group in 1996. The company also consults and compiles data of California hotel sales (which were slightly up by .3% last year from 2019; more than any other state) and new hotel construction.
“I think the last business trip that I did was to San Francisco, and that was back in September of last year,” Reay said. “We’re tentatively scheduled to go to Maui in May, and hopefully that’s still on.”
“Maui is for pleasure,” he said by phone. “Although when you’re in the hotel business, you’re always looking at hotels.”
So we asked him about them.
Q: The pandemic did a number on the hotel industry. Have you ever seen anything like this before?
A: I’ve been through a number of these downturns, and we never had a situation where the whole industry came to a complete standstill and closed down. On a positive note, the amount of interest that we’re now receiving from buyers is incredible. In some respects, it’s as if COVID never happened.
A: They’re buyers already based in California. And I’ve also received more calls from out-of-state buyers in the last two months than I have in the last 20 years. This is unusual because I’m hearing people want to leave California because of the taxes and everything else.
I say to them, ‘Why do you want to buy in California?’
They all say the same thing: Barriers to entry. It’s expensive to build a hotel here. Every one of them is saying ‘I want to buy in California, especially along the coast, because there is no land left to build on. It’s virtually impossible to get approval, which means I’m going to be able to push my rates up. I’m going to make a lot of money.’
Q: Your 2020 Year-End California Hotel Sales Survey shows Southern California had more sales than the northern half of the state. What explains it?
A: The one thing that has really come out of this pandemic is the markets that held up are those drive-to markets. We see more of those in Southern California in La Jolla, Coronado, Santa Monica — the beach locations — and San Luis Obispo, and places like that.
San Jose and San Francisco really led the way in terms of occupancy and average daily rate in the past. That hurt those markets the most because international tourism has completely shrunk, if not disappeared. Coupled with the complete shutdown of the convention business, that has really decimated markets like San Francisco and San Jose.
I will tell you that since they announced the vaccine, we’re starting to see interest pick up in acquiring the hotels.
Q: As cities reopen, are we going to see an uptick in room rates?
A: I think this is going to be a tale of two markets. For those hotels that are in drive-through markets or anywhere along the coast, because you’re restricted from flying internationally and because once we open up fully people will want to get out, I think the law of supply of demand will drive rates up. In fact, I have a number of clients that own hotels in Catalina and they were experiencing — even in October and November — record revenues.
However, if you are going into San Francisco or coming down to Anaheim or downtown Los Angeles and you’re staying in a 300 or 400-room Ritz-Carlton or JW Marriott, you’re going to find those hotels at least in the short term really aggressive on their pricing.
Q: How do hotels create safe spaces?
A: I’m going to digress a little bit because, historically, the motels that you would see along the roadside with the two-story exterior corridor were basically seen in the hotel industry as somewhat obsolete. None of the major franchise companies wanted them.
One of the positive effects of COVID is that those hotels that were basically written-off have made a very, very strong comeback. You can drive up. You can access your room without going to the front desk. You don’t have to check-in. A lot of owners are going in and making them more hip and boutique.
Many protocols are being administered by the major franchise companies — Hyatt, Hilton, Marriott, Intercontinental Hotels, Wyndham, Choice — because it is very important. At most of those hotels, you would have a complimentary breakfast buffet. That’s gone by the wayside because you’ve got to be very, very careful with COVID.
In San Francisco, the union representing the hotel workers wanted to mandate multiple cleanings per day per room, which, quite honestly, would make it impossible for hotels to operate. It would make it way too expensive to operate. They’ve since cut back on that, but you have them implementing where if someone stayed in a room, it has to remain vacant for 48 hours.
So, there’s still a lot of controls in terms of making that hotel work. But I’m not sure it’s going to change how hotels operate. In fact, one of the main things that hotels were moving towards were smaller rooms and getting people out of those rooms into the lobby where they’d use their laptop and mingle and everything else. That’s already designed, that’s already built. It’s impossible to unwind that.
Other than making sure it’s safe, I think what we’ll probably see is a return, slowly but surely, to normal hotel operations.
Q: When?
A: Again, this will all have to do with the vaccinations and how soon we can get back out.
If this will be here for a long time, then I think you’ll have websites like Trip Advisor start to rate hotels based on cleanliness and what they’re doing to keep COVID at bay. It will be a game-changer for hotels.
Meet Alan Reay
Title: President
Company: Atlas Hospitality Group
Hometown: Newport Beach
Education: Bachelor’s degree in business from Kingston University in Surrey, England.
Previous experience: Spent several decades in the hotel industry and investment real estate brokerage before establishing his own company in 1997.
