Despite the year of uncertainty caused by the COVID-19 pandemic, investors are taking to California’s hotel sector at record numbers. According to the 2021 Mid-Year Hotel Survey from Atlas Hospitality Group, the entire state is witnessing unprecedented growth in hotel sales, with total dollar volume up approximately 450 percent.
“You sort of understand record numbers on record sales when the market is doing fantastic, like when it was in ‘17 and ‘18, but to see these kinds of numbers after going through the really big downturn of the COVID-19 pandemic…we’re comparing numbers to every survey we’ve done in the last 20 years and we’ve never had this amount of dollar volume in transactions and it’s up not just a small amount, it’s up a substantial amount,” Alan Reay, president of Atlas Hospitality Group, said.
According to the survey, individual hotel sales across the state are up approximately 157 percent, the highest in recorded history. Record dollar volume of hotel sales also reached $5.2 billion.
Additionally, the average price per room went up approximately 13 percent compared to the last six months of 2020. The Alila Ventana Inn in Big Sur reported the highest room rate paid in California at approximately $2.5 million per room, according to the report. This surpassed the highest room rate ever paid in the state during 2017 by approximately 21.7 percent.
Reay said coastal properties similar to the Alila Ventana Inn are highly sought after in general due to the location being prime for tourism. San Diego’s hotel market, for example, also performed well, according to the report. Individual sales in the region were up by 180 percent compared to the last six months of 2020. Total dollar volume also was up approximately 525 percent, with the largest transaction in San Diego being the 210-room Hotel Indigo, which sold in June for $78 million.
Los Angeles County, however, led the charge with the largest amount of transactions, an increase of 200 percent since the last six months of 2020. Of the total transactions, both the JW Marriott Le Merigot Santa Monica and the Hyatt Regency LAX sold for the highest amount at $75 million each. The hotels sold in May and June, respectively.
However, Reay said the most surprising trend observed in the survey was the renewed interest in markets that rely heavily on business and convention travel. Santa Clara, for example, doubled its highest recorded dollar volume in 2017, with $600 million worth of transactions in the past six months. According to the report, the largest transaction in the region was the $82.5 million sale of the 229-Room Sheraton Hotel Milpitas.
“So you have the highest amount you’ve ever done in a six-month period, and this is Silicon Valley. It’s not a coastal market. Silicon Valley is heavily dependent on conventions and business traffic, so that to me is as big of an endorsement on a.) California and b.) high tech life science businesses,” Reay said.
Likewise, San Francisco saw an increase in investor demand, with total dollar volume jumping 700 percent in the past six months. Of these sales, the Sir Francis Drake Hotel sold in April for the highest amount at $157.6 million.
“None of the hotels that have transacted make any economic sense on the current financials, and all of the convention center hotels, we know they are going to lag in getting back to normal,” Reay said. “Here you have this kind of velocity in terms of hotels trading…They’re seeing this coming back v-shaped and they’re looking at 2022 being back to 2019 numbers.”
According to Reay, the survey showed investors are continuing to bet on the long term health of California’s hotel industry, with many believing the state will rebound in the next several years.
“It’s amazing. No one could possibly have predicted these kinds of numbers. A bounce back just doesn’t do it justice…I think what this shows us is that obviously a huge investment interest in California, there’s a tremendous amount of capital sitting on the sidelines. They’re obviously buying into the future of California, because none of the prices that they’re paying are making any sense on the current numbers. These investors are looking at the longer term and everybody is basically voting with their checkbooks to say, ‘We believe California prices are going to continue to climb,’” Reay said.