California hotel sales volume dropped to a new low in 2009, as reported by Irvine-based Atlas Hospitality Group; volume was down 52% from 2008 and 73% from 2007. The total dollar amount of all sales dropped 75% from 2008 and 85% from 2007.
Hotel prices also decreased significantly, with the median price per room down 30% from 2008 and 38% from 2007. Most hotels presently on the market are still priced too high to sell, and Atlas predicts another 10-20% drop in prices during 2010.
This drop in prices will cause a sharp upturn in sales during 2010, with dollar volume increasing to almost double 2009’s number. Atlas expects to see at least 150-175 transactions in 2010, as compared to only 92 in 2009.
Lenders in 2009 continued to delay processing the foreclosures of distressed hotels, opting instead to extend and forbear in order to defer the reporting of their losses. Although real estate owned (REO) hotels made up 73% of the 2009 sales transactions, the majority of distressed hotels have still not been resold. Foreclosure sales will continue to dominate the market in 2010, accounting for over 50% of sales transactions.
first tuesday take: California’s hotel market was late showing up to the foreclosure party. But their arrival was inevitable, as significant declines in travel and leisure spending, as well as the unlikelihood of a quick return to profitability, continued to drain owners’ cash resources in 2009. No segment of the California real estate market is unique enough to avoid the downturn in value, a devaluation ripple that cuts across all types of property until the general real estate market stabilizes. This of course is only felt by those who need to borrow, sell or lease.
Leisure spending was not the first discretionary spending to fall victim to this recession, but it will be well into 2011 before personal savings and confidence in one’s future income reach levels that will allow large numbers of families to return to the hotels. Even then, there are 1,200,000 fewer individuals employed in California today than there were at the peak of employment in November 2007, and it will likely take until the end of 2015 for employment rates to reach that peak again.
In the meantime, expect hotel prices to find their bottom not on travel and leisure, but on the prices developers can pay to acquire structures and turn a profit by converting them into condos and timeshares. Conversion happens to prime coastal hotels during every recession, as travelers spend less of their budget on travel, while others jump on the opportunity to get a vacation home for a bargain.
Re: “California Hotel Sales Survey Year-End 2009” from Atlas Hospitality Group [For a copy of the Atlas Hospitality Group report, see the article as it appears at hotelresource.com
