California hotel sales hit record price per room – but not in San Diego

Even though the pace of hotel sales slowed statewide in the first half of the year, California still hit a new record high for the price paid per room. San Diego, however, was an exception. It was down almost 12%.

Atlas Hospitality Group, the Orange County brokerage firm that tracks hotel transactions across the state, warned that six months isn’t necessarily a full picture of what lies ahead for the California hotel real estate market. Atlas Chairman Alan Reay expects deals to decline significantly over the remainder of the year as rising interest rates and uncertainty surrounding the economy dampen owners’ interest in parting with their properties.

In San Diego County, 25 hotels exchanged hands in the first half of this year, down from 28 a year earlier, a drop of nearly 11%, Atlas said in its new mid-term sales report. year. But measured by the number of rooms, the decline has been more pronounced – from 3,567 in the first half of 2021 to 2,384 this year, a drop of 33%, Atlas reported.

Since many hotels sold this year tended to be more of a mix of economy and mid-range properties, the total value of this year’s 25 deals – $326.5 million – was significantly lower than the previous year, falling 42%. Statewide, the total dollar value of sales fell 34%, while the number of individual hotel sales fell 10%.

For San Diego County, the drop in sales is not a reflection of an underperforming hotel market, Reay points out.

“Overall, we had a record median price per room for California and while it’s been down in San Diego, I wouldn’t say that means people are put off by San Diego,” he said. he declares. “The fact that we have again seen significant dollar volume reflects how strongly the market has rebounded from COVID. And maybe the owners had considered selling and getting out of the market before, but now we see the opposite.

“The owners say if I sell, what do I do with the money? You have fewer sellers in San Diego because outside of San Diego they don’t see hotel markets that would offer the same longer-term benefit as your area.

The median price per room among all sales in California was $143,443. That’s still far below some of San Diego’s most expensive deals this year.

The most expensive sale in the county was the 126-room Moxy, a hip Marriott boutique hotel that opened nearly four years ago in the East Village. The eight-story property on Sixth Avenue sold for $46 million. The second most expensive sale was the 90-room Inn at Rancho Santa Fe, which sold for $42.7 million. That translates to a cost of $474,444 per room, the highest San Diego County sales recorded in the first six months of this year, according to Atlas.

The most expensive hotel to change hands in California was the now closed 295-room Fashion Island Hotel in Newport Beach, which sold for $145 million. It is due to reopen next year as Pendry Newport Beach.

In the coming months, Reay predicts there will be a slowdown in sales activity, assuming interest rates remain high.

“With interest rates going up a few percentage points, that means to get the same cash flow, sellers have to price hotels lower, and the prices people are willing to pay have to go down” , Reay said. “In a market like San Diego that has no level of distress, landlords say if I can’t get my price, I’m not ready to sell.”

Pebblebrook Hotel Trust, a real estate investment firm that owns seven properties in San Diego, including resort hotels in Mission Bay and Del Mar, is more focused on selling assets than buying them, the chief financial officer said. Raymond Martz. However, he recently acquired the Inn on Fifth in Naples, Florida, for $156 million and Gurney’s Newport Resort & Marina in Newport, Rhode Island, for $134 million, he said.

For the remainder of the year, Martz said he expects Pebblebrook to be “more of a net seller than a net buyer.”

The company recently sold a hotel it owned in Philadelphia and has two other properties under contract for $104 million.

“We saw prices drop a few percentage points, but nothing really significant,” Martz said. “We feel we have done a good job maximizing the value of these assets that we are selling and can use this to fund recent acquisitions and also reduce debt.”

San Diego, he said, is rebounding strongly from the pandemic compared to other markets. While Martz couldn’t say what, if any, the company’s plans are for its San Diego holdings, he said Pebblebrook was pretty bullish on the market.

“We love this market so much,” he said. “If you sell, you may not be able to buy anymore.”

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