“Bubble Watch” explores trends that may indicate upcoming economic and / or real estate issues.
Buzz: It’s not just houses that are being swallowed up at a breakneck pace. An astonishing thirst for California hotels has helped break many sales records in the first six months of 2021 – a bet by investors that the woes of the pandemic era of tourism are nearly over.
Source: Semi-annual sales monitoring report by Atlas Hospitality Group.
Let’s look at the extent of the hotel industry’s buying frenzy …
Offers: 243 transactions in the first six months of 2021 surpassed the previous record set in 2017 by 42%. Compared to the depressed first half of 2020, sales increased by 157%.
Dollars: $ 5.26 billion spent on these transactions in 2021 was 23 percent above the previous record set in 2015. Compared to viruses cooled from January to June of last year, total dollar sales jumped 4.3 billion dollars or 451%.
I emailed Atlas President Alan Reay about his report, just writing “Wow”.
“’Wow’ is an understatement,” he replied.
Only a year ago, most California hotels were either closed or scaled-down as the closures dampened interest in travel.
The shift from deathbed to boom surprised Atlas researchers, whose report says “no one could have predicted the kind of revenue and incredible rebound we’ve seen.”
How “wow” has the hotel market in the four counties covered by the Southern California News Group been? Watch the surge in sales trends…
Los Angeles County: 48 transactions were recorded in the first half of the year compared to 16 a year earlier. These transactions totaled $ 911 million, up 606% in one year. Two hotels tied for the most expensive sale – the 580-room Hyatt Regency LAX and the 175-room JW Marriott Le Merigot Santa Monica. Both sold for $ 75 million.
Orange County: 29 transactions compared to nine a year earlier; valued at $ 529 million, up 255%. The most expensive ? Element Hotel Anaheim Resort with 174 rooms at $ 65 million.
Riverside County: 20 transactions compared to 13 a year earlier; valued at $ 139 million, up 81%. The most expensive ? 198-room Embassy Suites in Palm Desert at $ 21 million.
San Bernardino County: 15 transactions compared to 10 a year earlier; valued at $ 83 million, up 23%. Most expensive: 200-room Residence Inn Convention Center Ontario at $ 24 million.
The increase in binge eating from January to June was more pronounced in Northern California than in Southern California.
North: 141 hotels purchased, tripling the 47 transactions of the first half of 2020. These sales amounted to 2.8 billion dollars, up 578%.
South: 152 hotels purchased, up 127%. Value? $ 2.46 billion, an increase of 354%.
Reay told me that the selling frenzy is “a combination of a huge amount of available investment capital and investors seeing California hotels as offering some of the best long-term returns.”
“I think that also plays in hedging against inflation,” he said. “Hotels are able to change rates on a daily basis, unlike commercial, office and industrial buildings which are typically stuck in long-term leases with caps on rent increases. “
The 59-room Alila Ventana Inn & Spa in Big Sur – a 160-acre resort where room rates can exceed $ 2,500 a night – sold for $ 148 million. That price is equivalent to $ 2.51 million per room, 22% more than the previous California record per room set in 2019 by the Montage Beverly Hills of 201 rooms.
On a scale of zero bubble (no bubble here) to five bubbles (five alarm alert) … THREE BUBBLES!
Reay’s assessment: “We’re not quite where we are with residential home sales in California, but hotels are getting closer!
He added that hotel reviews still seemed reasonable – even as the statewide median price per room jumped 13% to a record high near $ 127,647.
“It’s good, well below the cost of replacement,” he says. “A new hotel cost today in California, assuming ground-level parking, is over $ 200,000 per room, excluding the cost of land and furniture, fixtures and equipment. If you have to park underground, it goes to $ 250,000 to $ 300,000 per room.
Second quarter hotel sales data. (Courtesy: Atlas Hospitality)
Jonathan Lansner is the business columnist for the Southern California News Group. He can be contacted at [email protected]. George Avalos of the Bay Area News Group contributed to this report.