Hotel Sales Slowed in 2007, Handful of $100M-Plus Deals

Orange County Business Journal, Mar 10-Mar 16, 2008 by Cain, Sandi

Orange County hotel sales slowed last year along with the overall economy.

In all, there were 18 transactions in 2007, compared to 28 in 2006, a 36% drop. That's according to preliminary year-end sales data from Irvine-based Atlas Hospitality Group.

Seven of the top 10 deals were sealed by July, with the remaining three closing in October and November.

"Larger transactions were difficult in the second half of the year," said Alan Reay, president of Atlas Hospitality.

Sale prices for the top 10 deals ranged from $200 million for the Hilton Anaheim to just less than $7 million for the Travelodge Buena Park.

In all, the dollar amount of hotel deals fell 35% from $761.2 million in 2006 to $495 million in 2007, despite three major hotels commanding more than $100 million.

But nearly half of the overall dollar volume in 2006 came from the $383 million sale of the Ritz-Carlton, Laguna Niguel. Take the Ritz deal out of the equation for 2006, and total sales volume was $423 million, 15% less than in 2007.

The biggest sales-those of $100 million or more-helped prop up the median price per room for 2007 at $93,159, down just 1.5% from $94,635 in 2006.

Topping the list last year by dollar amount was the sale of the 1,572-room Hilton Anaheim by Anaheim hotel Partnership to Newport Beach-based Makar Properties LLC. The reported sale price was $200 million. The hotel, across from the Anaheim Convention Center, sold for roughly $120,000 per room.

Since the deal, Makar has invested more than $50 million in a total renovation of guest rooms, public spaces and meeting space. The first phase was completed last fall.

A close second was the $194 million sale of the 376-room Marriott Laguna Cliffs Resort in Dana Point by Prudential Real Estate Investors of New Jersey, a unit of Prudential Financial Group, which bought the hotel for $82.4 million in 2004.

An institutional client of Hartford, Conn.based Cornerstone Real Estate Advisers, part of Massachusetts Mutual Life Insurance Co., bought the hotel.

That sale represented the highest price-perroom in the county at $515,957 per room for the bluff-top hotel.

In the past several years, Marriott Laguna Cliffs has renovated guest rooms, meeting space and its restaurant and added a spa. The new owners are undertaking another renovation to make the hillside resort more competitive with the neighboring St. Regis Resort, Monarch Beach and Ritz-Carlton.

Other top deals last year included the 484-room Hilton Costa Mesa, which was part of a 51-hotel portfolio sale by Hilton hotels Corp. valued at $2.4 billion. The buyer was a Dallas-based real estate investment trust, Ashford Hospitality Trust. Ashford also owns the Hyatt Regency Orange County in Garden Grove and Courtyard Irvine in Foothill Ranch, along with eight other Southland hotels.

While the price of each hotel was not broken out in the Ashford deal, Reay said it was fair to presume the Hilton Costa Mesa was among the five top deals of 2007. In 2001, the hotel brought in $70 million as part of a fourhotel portfolio deal between Hilton hotels and Orlando-based CNL hotels & Resorts Inc.

Other top 10 transactions went for considerably less money. The No. 4 largest dealthe 110-room Hampton Inn Cypress-was sold by Palmetto Hospitality of Cypress LLC to private investors for $17.5 million.

Aside from the top three deals, the only other full-service hotel among the top 10 sales was the 314-room Radisson Maingate Anaheim. Spokane-based Red Lion hotels Corp. bought the Radisson from Lindquist & Craig hotels & Resorts of Lawrence, Kan. for $8 million in October. The company is spending roughly $10 million on renovations to the hotel.

The transaction marked the return of the Red Lion to the OC market after a decade-long absence.

Other transactions among the top 10 deals of 2007 were:

* Country Plaza Inn San Clemente, an 86room hotel that was sold for $10.1 million by Yuba City Motel Investments LLC of Yuba City, Calif, to private investors.

* The 104-room Best Value Inn Orange at Chapman Avenue and Rampart Street at the edge of the Platinum Triangle, which sold for $9.7 million.

* The 177-room Quality Inn & Suites Disneyland Anaheim behind the new GardenWalk complex, which Global hotel Network Inc. sold for $9.5 million to Nara Investments LLC, both of Anaheim.

* The Arena Inn Anaheim, a 112-room motel, was sold to a private trust by Garden Grove-based Tog Enterprises for $9.2 million.

* The 99-room Travelodge Buena Park was sold by La Mirada-based Highlander Group LP for $6.9 million to private investors.

The slowdown in what was a hot hotel investment market may not have come to a full stop yet.

Reay said the market so far this year consists mostly of smaller deals as economic jitters put more investors in a holding pattern.

"We see a dramatic drop in large transactions, driven by the drop-off in available financing and capitalization rates, but there's still volume in small properties," Reay said.