Value of Hospitality Property sales drop for Orange County & San Diego

Both San Diego and Orange County witnessed a stark decline in the amount and value of their average hospitality property sales in the first two quarters of 2018. Both of these counties reflect the declining value of sales as we had initially seen in California during the first half of the year. The numbers, however, seem to be shocking amid the strong performance of the hotels in these areas.

According to the Atlas Reports, these plunging transactions merely stand as a break from the massive goals as set in the beginning of 2017. While California posted a 35 percent decline in their hotel ownership status, San Diego’s decline was tad higher (by 41 percent). The situation is worse for Orange county whose sales plunged by half of their average figures. The state allegedly recorded around 134 sales between January and June which is relatively poor when compared to their 206 sales (around the same time) on the preceding year. The total money spent on hotel transactions in the state went down by 28 percent, which amounts to a whopping $2.3 billion.

But while these reports directly indicate the steady advent of a sellers’ market, the hotels that managed trade came up with better deals than last year. The average price for every room on these deals had increased by 11 percent which is around $115,000 more than the previous year.

Although Orange County still made up for the loss with their high trades in hotels, the declines seem to be steeper in San Diego. Yes, the same county that witnessed their hotel deals plunge by 41 percent recorded only ten legitimate sales in the first two quarters. The gross amount spent on these deals declined by 77 percent which is almost equivalent to a loss of $86.2 million. Two of the biggest hotel deals in San Diego (during the first half of 2018) was the 169 roomed La-Quinta Inn located in Mission Valley and the spectacular 86-room West-inn Suites as located in Carsbad. Both these hotels recorded a sale of $19.5 million as per the data of CoStar.

However, even then, San Diego managed to post some major declines in both the average and the median price for every room. This holds true for all its completed transactions. Just by the North, Orange County witnessed a 50 percent decline in their average hotel deals for the first six months. Their sales had been very poor as they only managed to clock eight, proper deals. This is a stark decline compared to their 16-annual deals as reported even a year back. The amount spent on these hotels declined by 59 percent, reaching a figure of $152.9 million. Wyndham property, the massive 376-room hotel in Garden Grove managed to strike a sale for a mere $61 million. Sadly, this itself, happens to be the biggest hotel deal of Orange County during the first two quarters of the year.

The results of these sales go by the predictions of an old Atlas Report that showed San Diego and Orange County to be trailing Los Angeles County for their average number of hotels that are currently undergoing construction and planning.

According to Alan Reay, the president of Atlas, the dynamics of San Diego and Orange County’s sales will continue to be as stagnant by the remaining part of 2018. Although he does except some decent level-off in the subsequent year, he also feels that the current patterns of sales will affect the appetite of hotel developers thereby bringing forth relevant change in the real estate scenario.

He is pretty confident about better sales in 2019 because of high room prices in the recent California based hotel deals. Also, since the hotel performance metrics in Southern California is pretty strong, developers and real estate professionals will surely pick interest in the coming year. Researchers from Atlas concurred with his statement, suggesting that California properties are still getting great deals in the current market.

The president of Atlas further suggested developers to keep a keen eye on the current rates of interest. He is still pretty confident as this is likely to impact the eventual purchase patterns, particularly in the transactions that involve variable-rate loans as associated to the prime rate ones. As per Reay’s convictions, both the long-term and the fixed rate loans will be substantially moving up in the current scenario.

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