The largest sale of the year was the Westin St. Francis Hotel in San Francisco with 1,192 rooms, which sold for $243 million. By contrast, the largest sale in Orange County last year was the 225-room Ramada Inn Conestoga, which sold for $12 million. The top price per room last year was $114,285 for the Casa Laguna Inn.

"In Orange County it is really a misnomer that the market is unhealthy. In fact, across California the market is the healthiest it's ever been," Reay says. "The income is very strong and supports higher loans than lenders are willing to make. Lenders simply have turned away from the hotel product. We're succumbing to what's happening on Wall Street. It's more of a perception of the lenders than what's really going on in the marketplace. The problem in getting financing has really strangled new development as well."

There has not been overbuilding of hotel product in Orange County, Reay says. Demand for hotels is still increasing, but because lenders are still pulling back, there will be upward pressure on room rates until more product can be built.

Additionally, available land is going for a premium price since hotel developers have to compete with developers of retail and office product for the little land that is available. That competition, along with increasing land prices, has substantially increased the cost of contractors for new hotel product, as well.

Hotel chains that are in an expansion mode are an anomaly in the market right now, Reay says. Locally-based Ayres Hotel Group, a family run operation, is completing construction on two new hotels in Orange County, with plans to build three more hotels at various sites throughout Southern California. On a grander scale, Extended Stay America, a publicly traded company, is also expanding.