Orange County’s hotel investment market made more news in 2011 for what didn’t sell, as opposed to what actually ended up trading hands during a fitful year that took a turn for the worse, transaction-wise, in late summer.
There were 11 sales of local hotel properties last year, according to data from Atlas Hospitality Group, an Irvine-based consultancy. That’s an increase of two from 2010.
The combined prices of last year’s largest sales fell below 2010 levels, however, due to the lack of any single blockbuster deal. The four largest deals of 2011 combined for less than $100 million.
Also, the list of area sales doesn’t include two high-profile hotel and resort properties that many expected to have traded hands by year’s end but to date have not: the St. Regis Monarch Beach in Dana Point and Newport Beach’s Balboa Bay Club.
Still, combined with active sales markets in San Diego, Los Angeles and San Francisco, and California’s hotel industry saw one of its most active years for sales since the last recession, Atlas Hospitality President Alan Reay said.
“No question, last year was better,” Reay said.
In San Diego County alone there were nearly 40 hotel sales last year, Reay said. That includes December’s $56 million sale of the Estancia La Jolla Hotel & Spa in La Jolla to Irvine-based Pacific Hospitality Group LLC.
That 210-room resort, located on Torrey Pines Road next to the University of California, San Diego, traded hands for nearly $267,000 per room. It was the priciest hotel sale in the country reported in December, according to brokerage data.
Local Sales
Residence Inn Anaheim in Garden Grove was the priciest local hotel changing hands last year, with the 200-room property selling for $40.2 million, or about $201,000 per room.
Palm Beach-based real estate investment trust Chatham Lodging Trust took over the loan tied to the Residence Inn in July, as part of a five-hotel national portfolio that sold for a total of $195 million.
The largest hotel here to sell in 2011 was the 255-room Holiday Inn Hotel & Suites Anaheim. Los Angeles-based Urban Commons LLC paid about $103,000 per room for the hotel, which is next to the Disneyland Resort.
The $26.3 million Holiday Inn Hotel deal closed in August, which effectively served as the cut-off date for the bulk of large-dollar hotel sales across the country in 2011.
“The market kind of died in August,” said Rod Apodaca, senior vice president for CBRE Group Inc.’s hotel brokerage group, whose team brokered the Holiday Inn sale. “A lot of the REITs went away in the summer.”
Stocks of hotel-focused REITs “were pummeled severely (in the third quarter), effectively crippling their financial capabilities,” said Sam Winterbottom, senior vice president and national director of the hospitality group for Santa Ana-based brokerage Grubb & Ellis Co.
Macro-economic events taking place beginning in August, including the European financial crisis, were among the reasons for the pummeling, according to an annual hospitality market forecast authored by Winterbottom.
Upswing in Rates
Average rates per room and occupancy rates are expected to be on the upswing across the country again this year, which in normal times might result in higher prices for hotels being put on the market.
But this month’s Grubb & Ellis report said that with the stocks of hotel REITs suffering and debt harder to come by the past six months, it could “widen the gap between buyers and sellers, adding to the friction in the hotel transactions market.”
CBRE’s Apodaca’s said REITs this year will fall into the categories of “the haves and the have-nots.”
His team has the listing for the 107-room Inn at Rancho Santa Fe in San Diego County. A local investor is under contract to buy the resort, with that deal slated to close this quarter, according to Apodaca.
Meantime, the changing economic landscape seems to have impeded the sale of the St. Regis resort in Dana Point.
The Business Journal reported in August that Seattle-based Washington Real Estate Holdings LLC was near a deal to sell the 400-room St. Regis, one of OC’s highest-profile luxury resorts, for $290 million. Subsequent reports identified the would-be buyer as Bethesda, Md.-based Host Hotels & Resorts Inc.
But Host Hotel reportedly walked away from the deal in September, spooked by the ongoing economic instability’s impact on pricing. Host Hotels also pulled out of a $442 million deal for the Grand Hyatt hotel in Washington, D.C., last month.
Whether a sale of St. Regis moves ahead this year is unknown. Sources said in the fourth quarter that a foreign buyer was willing to pay about $270 million, but it is unclear if the offer remains on the table or if the price would be accepted.
Refinanced in 2007
The St. Regis was valued at close to about $375 million in 2007, when it was refinanced by its owners at the time, Newport Beach-based Makar Properties LLC and San Francisco hedge fund investor Farallon Capital Management LLC. Washington Real Estate took over the property in 2010 in a deal valued at about $235 million, or about $588,000 per room.
Another investor, Chinese battery magnate Winston Chung, last August announced plans to buy the Balboa Bay Club and Resort and the Newport Beach Country Club in a deal estimated to be worth nearly $175 million.
That deal was called off last week, (see story, page 1). The trend of foreign investors still could continue into 2012, according to market watchers.
Hollywood Glitterati
“Offshore private equity, particularly that of Chinese investors, continues to be active in the market,” Winterbottom said in his 2012 hospitality forecast.
The Balboa Bay Club, described by the Los Angeles Times as “an exclusive setting for local millionaires and Hollywood glitterati in the 1950s,” is expected to see another set of bidders this year. It was built in 1948 along the Mariner’s Mile section of West Coast Highway.
The club counts about 160 hotel rooms, along with 145 high-end apartments and a 144-slip private yacht marina. It got a $65 million expansion in 2003.
