Bay Area, California hotel sales implode as investors flee sector

OAKLAND — Sales activity for the hotel markets in the Bay Area and California more broadly imploded during the first half of 2023, in a renewed sign of the sector’s collapse following the coronavirus pandemic.

The number of hotels sold in the Bay Area and statewide tumbled over the first six months of this year at a pace reminiscent of the nosedive the lodging industry suffered in California in the wake of the recession of 2008 and 2009.

“We have seen nothing like this, nothing this bad,” said Alan Reay, president of Irvine-based Atlas Hospitality Group, which tracks the hotel industry in California.

Reay would know. Atlas Hospitality has been analyzing the statewide lodging sector for more than 20 years.

Specifically, the number of hotels sold in California during the first half of 2023 plunged by 52.9% compared with the first six months of 2022, Atlas Hospitality Group reported.

In 2009, at the tail-end of the last recession, hotel sales in California tumbled 51%.

Both Northern and Southern California suffered huge declines in the number of hotels sold, Atlas Hospitality reported.

Northern California endured a 44.6% plunge in individual hotel sales — specifically, 62 hotels were sold in this region in the first half of 2023 compared with 112 over the first half of 2022.

Southern California suffered a 58.9% nosedive in the number of hotels sold. An estimated 62 hotels were sold in that region over the first six months of 2023 compared with 151 in the first half of 2022.

The biggest hotel deal in Alameda County for the first half of 2023 was the purchase of the 276-room Claremont Hotel in the Oakland-Berkeley area for $163.3 million.

The other Alameda County hotel deal — two hotels were sold during the six months in that county — was the purchase of Springtown Inn, which has 125 rooms, in Livermore.

The largest hotel deal in Santa Clara County over the first six months of this year was the sale of the 89-room Arena Hotel in downtown San Jose for $22.9 million.

The other Santa Clara County deal was the sale of the 51-room Comfort Suites San Jose Airport in North San Jose for $1 million.

In a further sign of weakness for California hotels, some of the largest deals involved purchases in which a lender took back a hotel in the wake of a foreclosure of the mortgage.

Fairmont Century Plaza, a 394-room hotel in Los Angeles, brought a price of $760 million — a value that was established because the lender paid that much for the hotel in a foreclosure of a delinquent loan.

Hotel Huntington, a 135-room lodging perched atop San Francisco’s posh Nob Hill, was bought for $29.3 million a deal that was preceded by an investing group taking over the loan and finally taking ownership through a foreclosure deed.

More foreclosures loom for the struggling Bay Area and California hotel markets, according to the Atlas Hospitality report.

Reay thinks sellers are placing too high a price on their hotels and need to consider the reality that mortgage rates have forced loan finance costs skyward for property buyers.

“We are now seeing an uptick in notice of default filings and foreclosures, as well as borrowers simply handing the keys back to the lenders,” Atlas Hospitality stated in its mid-year report, which Reay authored.