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Buyers Continue To Show Strong Interest In California Hotel Investments

Nearly 300 hotels worth more than a combined $6B traded in the Golden State last year, a 6% increase in transactions and a 7.4% jump in total dollar volume from the previous year, according to a new report.

Atlas Hospitality Group's California Hotel Sales Survey 2019 year-end report released Wednesday found that 157 hotels sold for $3.4B overall in Southern California last year. Northern California had 140 hotels change hands in deals totaling $2.6B. 

Montage Beverly Hills
Montage Beverly Hills

"California saw a rebound in the number of individual transactions in 2019," according to the report. "Buyers continued to show strong interest in Golden State hotel investments."

In a follow up email to Bisnow, Atlas Hospitality President Alan Reay said several factors contributed to the increase in sales transactions and the rise in total dollar volume in the state.

Record low-interest rates, foreign buyers, and alternative-use buyers and investors converting hotels to low-income housing were among several factors that led to the increase in hotel acquisitions in the state last year, Reay said.

"We have seen deals being financed on the CMBS side at sub 4% rates, when typically the lower interest rates on hotels have been in the 5% to 6% range," Reay said. 

But Reay is bearish when it comes to forecasting hotel transactions in the state this year. "We are forecasting sales to remain flat to down slightly," he said. 

With the reported $415M acquisition of the 201-room Montage Beverly Hills by the Irish- and Qatar-owned Maybourne Hotel Group in December, Los Angeles County had the most total dollar volume transacted in the state, with $1.24B in hotel transactions last year. The Montage set a state sales record at just under $2.065M per room, a 21.3% increase from the previous per room high set by the Malibu Beach Inn in 2015, according to the report.

LA County hotel transactions increased 6% year-over-year, but total dollar volume was down 13%, dipping from $1.4B to $1.2B, according to the report. The 580-room Hyatt Regency LAX was the largest hotel sold. 

Orange County hotel transactions increased 12%, from 16 to 18 hotels year-over-year. The total dollar volume jumped 188%, from $343M to $989M. The $477M sale of the 400-room Monarch Beach Resort in Dana Point was the most expensive hotel sale in the state last year.

Riverside County led the way in the state, with 25 hotels trading last year totaling $140M.

Atlas Hospitality Group President Alan Reay
Atlas Hospitality Group President Alan Reay

In San Diego, though transaction numbers were down 26% from 27 to 20 year-over-year, total dollar volume was up 84%. Led by the $189M sale of the 438-room Hyatt Regency Mission Bay, more than $767M worth of hotels sold in San Diego last year.

In Northern California, San Francisco County had 13 hotels trade for more than $1.21B, a 13% decrease in the number of transaction and 2% decline in total volume dollars.

However, the average price per room increased 30% and the median price per room went up 108%, the highest percentage increase of any county in the state, according to the report.

The 531‐room Hotel Riu Plaza Fisherman's Wharf was the largest and most expensive sale in San Francisco at $270M, the report states. 

Santa Clara doubled its hotel transactions from four in 2018 to eight in 2019. Alameda and San Mateo only saw two hotels each sold in those areas last year. In Sacramento, nine hotels traded for a total of $96M last year, according to the report.