"In Northern California the prices were still up slightly, but the gap is continuing to narrow between Northern and Southern California," said Alan X. Reay, president of AHG and author of its 2001 Year-End California Hotel Sales Survey. "In 2002 I expect the gap to narrow more for two reasons: prices are continuing to climb in Southern California, and in Northern California price increases will stop and may start freefalling."
Although the number of hotel sales fell by 13% around the state last year, the median price per room increased by 18.7% in Northern California and by 19.8% in Southern California. However, the fallout of the high tech industry combined with the number of hotel properties going into Chapter 11 bankruptcy and now in default is the primary reasons Reay believes prices are starting to come down up north. Still, the gap in sales prices based on median price per room which was 19.1% in 2000, was down to 18.1% for 2001.
Room rates in the northern half of the state are softening in terms of the Average Daily Rate (ADR), even though occupancy numbers were up. As Reay explained it, the softening of room rates "really goes hand in hand with how good business is. ADR is driven by corporate travel. As companies are cutting back staff and travel budgets, business travelers are not staying at the higher end hotels, thereby putting pressure on everyone's room rates. Even before 9/11 the market was definitely softening."
The top hotel sales for the year in 2001 in Northern California were the Mandarin Oriental Hotel in San Francisco which sold for $262,658 per room; the Hotel Inverness in Inverness which sold for $243,902 per room; the Spindrift Inn Monterey for $238,620 per room; the Monterey Bay Inn for $238,662 per room; the Victorian Inn Monterey also for $238,662 per room and the California House Inn Napa for $232,467 per room.
The median-sized hotel project which sold in 2001 contained 85 rooms compared to 59 rooms in hotels selling during 2000, a 60% increase year over year. There were 92 transactions last year compared to 98 in 2000, but total sales volume was up from $468,865,000 in 2000 to $501,103,909 last year. Total number of rooms sold went from 8.332 in 2000 to 8,557 in 2001.
While a majority of buyers are sitting on the fence waiting for hotel properties to be taken back by the lenders, Reay believes that the current low interest rate environment is helping owners hold onto their properties. And although revenues are plummeting at many hotels, he admits a bit of surprise that more properties are not going into bankruptcy.
"I think 1999 through early 2001 when the market was red hot, were really anomalies. I think [Northern California] is look at least at 18-24 months before going back to the numbers we had in 1998," Reay said.
Back in 1998, 110 hotel properties were sold in Northern California for a sales volume of $1.365 billion.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
