The California hotel market is sailing again, while nearly every other sector of the California real estate market continues to languish in the doldrums of the economic recovery.

Despite ongoing reluctance of U.S. investors to add commercial real estate development projects to their portfolios, the Los Angeles hotel market is poised to meet (and possibly exceed) pre-recession growth rates. The supply of hotel rooms in the Los Angeles area increased in 2010 16.5% while demand was estimated to have risen 25.9%.

L.A. area occupancy rates and total hotel transactions are up as well. The average occupancy rate in Los Angeles for 2010 was 68%, up 4% from 2009. While San Francisco currently has no new hotel developments planned, Q1 2011 came in very strong for the Bay Area market with a steadily rising occupancy rate in 2010 of 75.2% — all laudable numbers considering the state of the California hotel market one year past. [For a snapshot of the California hotel market in early 2010, see the February 2010 first tuesday article, Hotel market has yet to hit rock bottom.]

This resurgence in the California hotel market is due in large part to the innovative EB-5 immigrant investor program. Immigrant investors from Asia and the Middle East, the majority of which hail from mainland China, can receive a green card if they invest $500,000 to $1,000,000 in a new or troubled commercial enterprise that will create at least ten jobs. If the funds are invested in a targeted employment area (TEA) the investor need only put up $500,000 at most to reap the benefits of the program.

The vast preponderance of large-scale hotel deals currently taking place in Los Angeles have been made possible with EB-5 funding. So, while foreign investors are betting on an increased California cap rate, let’s hope this apparent resurgence in the California hotel market signals the job growth necessary to stimulate the other sectors of California real estate as well.

first tuesday take: All real estate professionals, regardless of whether they focus on single family residence (SFR) sales or the management of one-to-four unit residential properties, should keep abreast of trends in their local hotel market.

Signs of growth in California’s hotel sales, investments and occupancies relate to one, primary concern for all agents across California: jobs. Jobs move real estate, and when hospitality centers are developed they bring jobs to the community and, perhaps more importantly, signal an increased demand for hospitality services sought after by business people and vacationing families alike. [For more information regarding California jobs and their effect on the real estate market, see the June 2011 first tuesday article, Jobs move real estate.]

While job growth in California has yet to return to normal annual rates, the success in the hotel market is an indicator of positive change to come. It is also further evidence of first tuesday’s oft-predicted further job and housing development in California’s cities. Look to the sectors of growth and success in California real estate, no matter how small, and follow the demand all the way downtown. [For more information on the urbanization of the California real estate market, see the June 2011 first tuesday article, It’s all happening in the city, eventually.]

Re: “U.S. Hotel Markets” from Mortgage Banking Magazine, June 2011