California’s Top Hotel Sale Hints at Peak Demand

CoStar
07/30/19

California’s Top Hotel Sale Hints at Peak Demand Amid Record Tourism in Most-Visited State
By Lou Hirsh

https://product.costar.com/home/news/shared/1711362280

Hong Kong-based GAW Capital Partners bought the 417-room Hyatt Regency La Jolla hotel and adjacent retail space in San Diego for $147 million in California’s priciest hotel transaction this year, a sign the state’s growing hospitality market in the nation’s most-visited state could be reaching a peak.

Walton Street Capital and JMA Ventures sold the 14-story, four-star Hyatt hotel at 3777 La Jolla Village Drive, which included a 32,000-square-foot retail building next door that is vacant and formerly housed a luxury gym tied to hotel operations, according to CoStar.

The deal is a reflection of booming interest in hotels in California, popular with tourists for its beaches, conventions and accelerating economy. Hotel research and brokerage Atlas Hospitality Group in Irvine, California, has recorded 152 hotel sales in the state so far this year, up 13.4% over the same time last year. That’s helped set a state record median sale price per room of just more than $130,000 compared to $115,000 last year.

“We are definitely at a peak,” Bruce Baltin, managing director of brokerage CBRE’s Hotel Advisory group in Los Angeles, said of the hotel market’s climb for the past several years. “The general state of the California hotel market is at a very healthy plateau. We have had a number of years of growth in rate and occupancy so the market overall is very healthy but it’s flattened out.”

CoStar allocated a price of about $133 million for the hotel portion of the deal and $13.9 million for the retail property. The sale tops the previous leader for California hotel deals this year: the almost $127 million purchase of the 155-room Loews Regency San Francisco, by Westbrook Partners.

Among all states California ranks as the top travel destination, bringing in more than 217 million in-person trips last year, according to the nonprofit for the state’s tourism industry Visit California. It projects 223 million visits this year.

“It’s almost like there’s an insatiable appetite for these hotels” by investors, said Atlas Hospitality Group President Alan Reay, whose firm was not directly involved in the Hyatt Regency La Jolla deal.

Baltin, who also wasn’t involved in the deal, said revenue per available room, a key indicator of a hotel’s value measured by multiplying a hotel’s occupancy by its average daily room rates, grew steadily until 2016, when hotel occupancy hit a peak. Since then, average daily room rates have been increasing on par with inflation at about 2% to 3% and has pushed up RevPAR only slightly.

That follows part of a trend in the national hotel market, according to the most recent hotel report from CoStar Portfolio Strategy, which showed relatively flat occupancy gains weighing on the growth of RevPAR even as room rates climbed steadily at the end of last year. The report listed San Francisco, Los Angeles and San Diego as among the nation’s top 14 cities as leading markets for sales last year.

The Golden State’s hotel market is expected to continue to draw investors interested in taking advantage of the market’s strength. California provides a “good balance of demand sources, among conventions, commercial and leisure” visitors, Baltin said.

The Hyatt Regency deal works out to roughly $319,000 a room for the hotel portion, which is less than the $409,000 a room average sale price for the top 10 sales of hotels in the state this year, according to CoStar.

“On a price per room basis, it seems like an attractive price for the buyer, great location and purchased below replacement cost,” said Reay.

CoStar data indicates that the sale also provided a hefty premium for Walton Street and JMA, which purchased the Hyatt Regency La Jolla, built in 1989, for $118 million in May 2015, from Strategic Hotels & Resorts Inc. and GIC Private Markets of London.

The buyer and sellers did not return requests for comment.

About the author