Sales of hotel properties in the county plummeted by more than 57 percent last year, the consequence of significant declines in spending by business and leisure travelers and widespread financial distress among hoteliers.

 

A year-end report released this week by Irvine-based Atlas Hospitality Group revealed that statewide, hotel sales fell 51 percent, in part, because hotel prices were overinflated by owners unwilling to acknowledge slumping values, said Alan Reay, president of Atlas Hospitality.

 

“There’s only one reason the market is not moving, and that’s pricing,” Reay said. “The issue has been that properties have not been priced to market. It’s interesting how much we are paralleling the housing market. Residential lenders and homeowners were in denial that the property values had dropped this much. Then they said, whoops, the market is bad, let’s sell. It’s the same with the hotel market.”

 

In San Diego County, there were just six hotel sales valued at $50.4 million last year, compared with 14 a year earlier, totaling nearly $145 million, Atlas reported. The median price per room paid by buyers was $64,929, down nearly 28 percent from 2008.

 

The largest, most expensive transaction in the county was the $28.5 million paid for the 145-room Homewood Suites in Carlsbad. The largest sale in the state was the 404-room W in San Francisco. At $90 million, it accounted for more than 17 percent of the entire California dollar volume in 2009.

 

Other San Diego County hotels that changed hands included:

 

• The 94-room Hampton Inn in Carlsbad, at $15.8 million

• The 64-room Gaslamp Plaza Suites, which did not disclose the sales price

• The 46-room Pacific Coast Inn and Suites on Mission Bay Drive, at $4.65 million

• The 35-room St. Francis Motel in El Cajon, at $1.8 million

• The 41-room Travel Inn Motel in Carlsbad, at $2.85 million

 

As dour as last year’s stats are, Atlas expects a sharp rebound in sales as prices decline and lenders unload distressed properties. More specifically, the company predicts 150 to 175 transactions this year, a significant increase from last year’s record low of 92. Further, the dollar volume will be almost double last year’s $525 million in sales, and prices will decline by 10 percent to 20 percent.

 

Robert Rauch, a San Diego hotel consultant and owner, said he and his partner are scouring the market for potential purchases, but they will be very particular about what they consider buying, given the still-fragile economy. He says they will set their sights mainly on properties in downtown San Diego, coastal areas of the county and north San Diego.

 

“We are looking for something where we can get a 20 or 30 percent return by restructuring the property or through renovation, a new brand, or new management,” said Rauch, who owns the Homewood Suites by Hilton and the Hilton Garden Inn in Torrey Hills. “We feel we can increase the value.”

 

He believes financing for hotels will be more widely available than last year, when lenders were skittish about providing capital for hotel acquisitions, Rauch said. But purchasers, he added, will be required to come up with substantial equity, and lenders will want to see that the properties are located in strong markets, are backed by reputable brands, and that the buyers are experienced hotel owners.

 

Given the large volume of distressed properties, Atlas believes that sales by lenders will account for roughly half of this year’s transactions, compared with the 73 percent foreclosure sales in 2009, Atlas reported.

 

Last year saw increasingly high-profile, upscale hotels make it onto lists of distressed properties. Now overseen by a receiver, the W hotel in downtown San Diego fell into default last summer when its owner, Sunstone Hotel Investors, decided it was no longer worth the $65 million owed on the loan. And the posh St. Regis Monarch Beach in Dana Point is now owned by its lender.

 

San Clemente-based Sunstone has also defaulted on a loan covering three other lesser-known properties in San Diego County.

 

While lenders last year were either unwilling or slow to unload financially troubled hotels, that should start to change this year, Reay said. Prices, however, need to come down, he added.

 

“You can always find money and buyers if the price is right, and the problem is the pricing hasn’t been right and still isn’t right,” he said. “The vast majority of the 950 hotels currently on the market are overpriced. In general terms, though, there will be more transactions this year. The only alternative is for lenders to sit on these hotels, which they’re not really equipped to manage, and they will lose more money if they keep them.

 

“A receiver’s job is typically to baby-sit the property, not to build profitability.”