Hotel Investment Sales Plunge in California

The dollar volume of hotel sales in California dropped below $1.2B in the first half of this year, compared to $2.3B in H1 2023, as high interest rates and increasing operating costs had buyers focus on smaller properties.

Although the number of individual hotel deals was nearly the same in a year-over-year comparison—the deal count ticked down to 122 from last year’s mid-year total of 124. The drop in dollar volume reflects a plunge in the average sales price of the transactions, according to Atlas Hospitality Group’s mid-year sales survey.

The average sales price of a hotel dropped in California to $9.7M in the first two quarters of 2024, compared to $18.6M during the same period last year, Atlas reported.

Hotel transaction activity in Southern California totaled about $739M in the first six months of 2024, down nearly 54% from the first half of 2023; investors paid a total of $448M to buy hotels in Northern California.

“The lingering impact of higher interest rates, combined with the rise in operating costs, particularly in labor and insurance, are holding down sales volume and prices,” the Atlas survey said.

In San Francisco, the most expensive hotel deal in the first half of this year was the purchase of the 136-room Da Vinci Hotel for $16.5M. Alameda and Santa Clara counties each had a single transaction during the same period: a 148-room La Quinta Inn traded for $12M in Oakland and the 51-room Comfort Suites San Jose Airport was sold for $10M.

The increasing cost of labor is driving up operating expenses for larger hotels. Over the weekend, members of the hospitality union Unite Here—representing an estimated 3,000 workers in eight hotels in San Francisco—voted to authorize a strike, Hotel Dive reported.

Strike authorization votes by hotel workers also are pending in Oakland, San Jose and San Diego, the report said.

According to Atlas’ mid-year hotel development survey for California, the number of hotel openings in the Golden State ticked up to 22 from last year’s mid-year total of 20, but the total of 2,289 rooms encompassed by this year’s openings represented a 15% year-over-year decrease.

The hotels under construction reflected a similar trend: the mid-year tally remained at 122, while the number of rooms under construction in California dropped from 16,321 to 15,468.