Staying Power

Los Angeles Business Journal
08/30/19

Staying Power
Investors are buying modest hotels but holding onto trophy properties

By Hannah Madans

https://labusinessjournal.com/news/2019/aug/30/staying-power

A rising number of smaller, modest hotels changed hands in the first half of this year in Los Angeles — a marked change from the same period last year when several large, luxury hotels in the county sold at premium prices.

Investors in luxury hotels and resorts are likely hanging on to such “trophy properties” because business is steady and revenue per room is rising.

“With revenues being high, there’s not a huge motivation to sell,” said Bruce Baltin, a managing director at CBRE Group Inc.’s hotel platform.

According to Atlas Hospitality Group, there were 22 hotels sold in L.A. between January and June of this year with deal volume totaling $180 million — an average of $8.2 million a sale. During the same period last year, hotel sales averaged $18.8 million apiece, with 14 deals in L.A. and dollar volume reaching $263 million.

The biggest deal during the first half of this year was the $44.5 million sale of Hyatt Place Los Angeles/LAX/El Segundo. A handful of other hotels sold for more than $10 million but no other sales were recorded above $15 million, according to Atlas.

This year’s sales of more modest Best Western International Inc., Quality Inn and Motel 6 properties in Los Angeles could indicate investors are now looking to acquire and upgrade smaller properties to take advantage of the strong market.

Alan Reay, president of Atlas Hospitality Group, said investors are finding that hotel investments are profitable right now while interest rates remain low. “We’re seeing a number of investors come into hotels from other product types, especially apartments,” he said.

China’s influence

Some of the large trophy property sales in recent years were driven by policy changes in China where regulators cracked down on capital outflow, including foreign investment in real estate.

As a result, Chinese companies were forced to sell trophy assets, and the hotel industry was hit hard. In 2017 alone, there was a 55% drop in Chinese investment in U.S. commercial real estate, according to a report from Cushman & Wakefield Inc.

For example, China’s Anbang Insurance Group Co. Ltd. purchased Strategic Hotels & Resorts for $6.5 billion in 2016. The portfolio included Loews Santa Monica Beach Hotel, the Montage Laguna Beach and the Ritz-Carlton, Laguna Niguel. Then in 2018, the China Insurance Regulatory Commission took over the company amid fraud allegations and has been selling off its assets.

Some of those sales are expected to close later this year.

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