$50M in Hotel Buys Hint at Past, Present

Orange County Business Journal
11/06/17

$50M in Hotel Buys Hint at Past, Present
HOSPITALITY: Sales at Dyer & 55 Are Midscale Trend Marker
By Paul Hughes

http://www.ocbj.com/news/2017/nov/06/50m-hotel-buys-hint-past-present

 

George Santayana said those who do not remember the past are condemned to repeat it, but sometimes that’s not so bad.

Two recent Santa Ana hotel sales totaling $50 million point to the power of even nondescript local legacy submarkets, a hospitality trend-line that emerges about every 10 years, and the history of hotels and Orange County land development.

CoStar Group Inc. records show Hampton Inn & Suites Santa Ana/Orange County Airport sold for $21 million in September and Holiday Inn Santa Ana-Orange County Airport sold for $28.5 million in August.

Hampton’s 121 rooms went for $162,000 per key. It last sold in March 2013 for $16.5 million.

Holiday Inn’s 176 rooms sold for $173,000 apiece. It last sold in June 2002 for $12.1 million.

They’re part of seven properties off the Costa Mesa (55) Freeway at Dyer Road—the towering and terraced 300-room Embassy Suites by Hilton being the most visible—as cars whiz by on the way to John Wayne Airport, downtown Irvine, OC beaches or Disneyland Resort.

Big names involved here at one time or another include Blackstone Group LP, OC hotelier B.U. Patel, land developer Bob Warmington and several local brokers, including CBRE Hotels.

Scorecard

All of the hotels are at least a quarter-century old.

La Quinta Inn, Country Inn & Suites, Clarion Inn & Suites and Best Western Plus complete the cluster (see chart).

Apart from the two recent deals, the others last sold from three to 21 years ago, none for more than $78,000 a room.

The seven comprise 1,235 rooms with rack rates of $80 to $150 daily, depending on season.

The properties tout business centers more than meeting space, though some do have the latter.

Embassy Suites on the southern end to Clarion Inn at the northern edge is a six-minute walk.

With La Quinta as the hub, each of the six spokes is a tenth of a mile long as the crow flies.

Six of the seven reference the airport in their names; JWA is less than four miles away.

Beet Sugar

The location was more deterministic than designed.

“There weren’t any other sites,” said Robert E. Woolley Sr., who built two of the seven hotels in the 1980s. “In the early 1980s there was absolutely nothing available in the airport area, which of course would’ve been much better.”

Scranton, Pa.-born Wooley originated the all-suites concept; his first in Phoenix in 1969 came by converting an apartment complex into his brand, Granada Royale Hometel. He moved his firm to Newport Beach in 1980.

The land at Dyer had housed the Santa Ana Sugar Co. co-op, built in 1912 with Irvine family money—one of OC’s biggest beet sugar processors, producing 1,200 tons daily from crops grown by some 200 farmers on 9,000 acres.

The factory closed by 1982, and Warmington ended up with the dirt, Woolley said.

He built a Granada Royale and a Woolley’s Petite Suites.

The first became the Embassy Suites when Woolley sold his company in 1984 to Holiday Inns Inc., which then owned the brand, for a reported $111 million; the second became a La Quinta after a $14.2 million sale in 2006.

Woolley figured he’s built three hotel chains and 100 properties, including several resorts in Hawaii and Mexico.

Now 83 and in that state of “never-retired” common to real estate executives, he’s preparing to sell Aurora, Colo.-based Woolley’s Classic Suites to his son, Robert Woolley II, and stepson Alexander Merson.

Horse Race

A difference of opinion makes a horse race, and the finish line for this one is at Dyer and the 55.

Woolley’s note that he’d have preferred an airport location is echoed by local hotel executives, who say the area—known as the “Hotel Terrace” submarket for the main drag on which five of the seven are located—is an underachiever for OC compared with hotspots like downtown Irvine, the airport area or Anaheim resort district.

Sources said the age of the properties and the dearth of walkable nearby amenities make it less attractive to travelers.

On the other hand … $50 million.

And the two that sold, Hampton and Holiday Inn, had 82% and 80% occupancy, respectively, last year. That’s right with the California average of 81% and well above the national average hotel-occupancy rate of 71%, according to STR Inc., a Tennessee-based provider of hotel market data.

Hotel broker and consultant Alan Reay said such “phenomenal numbers” are in hospitality’s strongest niche: “mid-priced, limited service” properties like the Dyer Road cluster.

New and nicer product nearby—Bob Olson built two Marriott brands in 2013, Fairfield Inn and Residence Inn, with 300 rooms and rates near $200, two miles down the freeway at Edinger—hasn’t cut Hotel Terrace numbers, he said.

The Marriott brands “are better brands but further down the road,” said broker Harry Pflueger. “This is a cluster of lodging close to the ocean, the airport and Disney,” and the room price is right.

Heavy Hitters

Pflueger’s Maxim Hotel Brokerage in Newport Beach sold the cluster’s 177-room Country Inn & Suites—then a Quality Suites— in 2005 for $13.8 million.

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