Bay Area Hotel Sales Rise Smartly in 2011

By Jon Peterson

The largest and most expensive hotel sold in San Francisco County last year was The Westin San Francisco Market Street. The 676-room behemoth traded for $172 million, or $250,000 a room, according to new year-end research from Atlas Hospitality Group in Irvine.

While impressive, that compares to the largest and most expensive hotel sale in the country last year: San Diego’s 1,625-room Manchester Grand Hyatt, a two-tower conference hotel downtown that overlooks the San Diego Bay and the ritzy town of Coronado. The property sold for $750 million, or $462,500 a room.

California hotel sales reached a new high in 2011, with Northern California transaction counts more than doubling from the year before. “One of the main reasons for the increase was that there were many larger hotels that were sold in 2011,” said Alan Reay, Atlas Hospitality president.

“Total transaction volume for the year is significant given that it beat the previous record by $200 million in 2006,” he said. “Many real estate experts believe that when hotel sales volume is up, it is a good indicator that the overall real estate markets will improve. That’s good news for everyone.”

San Francisco transaction counts climbed 27 percent to 19, with the total dollar volume up 36 percent to $709.8 million. Statewide, total transaction volume for the year was $5.3 billion, surpassing the previous record set in 2006 of $5.1 billion.

The San Francisco County market had the most sales of hotels of any region in Northern California in 2011, but on a percentage basis, the increase in transaction counts in Santa Clara, San Mateo and Sacramento counties far outstripped activity there. Nineteen properties sold in the city during the year with a total sales price of $709.7 million, up from 15 property sales in 2010.

Meanwhile, Santa Clara County saw a 250 percent increase in the number of properties sold, rising to 14. Average room price and median room price rose by 62 percent and 88.5 percent respectively. In total, there were 152 hotel sales in Northern California last year, including Sacramento County, compared to 73 sales in 2010.

“I would expect that the total purchase price that hotels in California are sold for would drop by 10 percent to 20 percent” in 2012, Reay said. The main reason is that many of the state’s trophy hotels have already sold. Nonetheless, he predicts transaction volume will remain robust, with up to 300 properties selling, compared to 316 sold statewide in 2011.

The report by Atlas Hospitality also predicted that lender sales of properties will continue throughout 2012, but only in secondary and tertiary markets. Atlas is seeing this first-hand. The company represents Wells Fargo in the sale of the 95-room Hampton Inn & Suites in Pittsburgh, which is expected to close in the middle of March. The property opened for business in 2009.

Real estate investment trusts will be active acquirers this year, Reay predicts, as well as private equity companies. “Another group will be investors from China who will want to buy properties in either San Francisco or Los Angeles,” he said.

Atlas Hospitality has completed the hotel sales survey annually for 16 years.

West Coast Commercial Real Estate News