California hotel owners faced another tough year in 2024, with hotel deal dollar volume dropping 10.4% — the fourth lowest it’s been in the past 15 years, according to a year-end survey. The number of individual hotel sales dropped by 6.4% year over year as well.
The California Hotel Sales Survey 2024 Year-End reports roughly $3.36 billion in hotel deals in the state last year, down from $3.75 billion in 2023. The number of sales fell from 265 to 248 in 2024.
Atlas Hospitality Group President Alan Reay said that when a big decline in the number of sales transactions happens — like the market saw in 2023 primarily due to the rise of interest rates — a decline in median price for room usually follows.
However, even in light of the state's decreased number of sales and decline in the dollar volume, in terms of the median price per room, sales were pretty much flat — just down 0.5%, from $150,000 to $149,222.
“I think what we're seeing is still a big disconnect on price expectation between buyer and seller,” Reay said. “We’re still seeing the impact of the higher interest rates, and when we take the fact that a lot of lenders now pulled away from hotel financing, it's making it even more difficult for those transactions to get closed.”
However, the report noted that "lenders have been more accommodating with borrowers, reducing the urgency to sell quickly."
The end-of-year report holds a bit more hope than the report detailing activity in the first half of the year, which chronicled a drop in hotel deal dollar volume during the first half of 2024 by nearly 50% compared to the same period in 2023.
Another factor in the deals environment is valuation: Some properties are selling for half the price they were less than a decade ago, Reay said
“If you're an owner looking to sell or [refinance] a loan … it is not helping the fact that you are now seeing some hotels selling at huge discounts [compared] to prior sales price,” he said. “And appraisers have to take that into account.”
What to know
One thing Reay said he’s tracking is the state’s commercial mortgage backed securities loans. California had about $3.4 billion in total hotel sales last year, and there are 357 hotels that are on the CMBS watchlist with a total dollar value of loans over $6 billion.
“There are 43 California hotels with CMBS loans that are now delinquent, so I think what that says is that a lot of hotels are still struggling with valuation as well as the financing, and the CMBS lenders are yet to become aggressive and take properties back,” he said.
Per the report, the biggest transaction of the year was the 686-key Hyatt Regency San Francisco Downtown SoMa that transferred via deed-in-lieu back to the lender for $290 million, which Reay said isn't the most telling, since it's a keys-back deal.
Another factor in 2024 hotel deals were the 19 hotel sales that were part of the state’s Homekey program, a statewide effort to provide interim and permanent housing for individuals experiencing homelessness. Most, if not all, of those hotel owners who sold into this program then repurchased replacement hotels in California, accounting for about 38 of the 248 transactions in 2024, or roughly 15%, Reay said.
"That in itself — it's not one single buyer, but that program accounted for the biggest single set in hotels purchased by any one entity," he said.
Meanwhile, Orange County saw a 156% increase in dollar volume of sales, from $246.9 million in 2023 to $631.1 million last year and a median price per room increase of 76%. With the same number of transactions compared to 2023, the county was buoyed by the sale of the Residence Inn Anaheim Resort that sold for $179.2 million, representing the largest deal in Southern California last year.
Looking at 2025
The hotel industry, which had already seen insurance rates rise across the board, should expect to only see conditions worsen in that regard considering the recent fires. With rates rising up to 400% in some cases, operating costs will similarly rise, affecting valuations and deterring transactions, Reay said.
But hope is not lost, and, in terms of profitability, there’s more potential with fewer operating hotels in the market.
“We have a situation where we have a declining supply, and we still have the demand for rooms here in California,” Reay said, pointing to California’s historically consistent tourism market. “You have fewer hotel rooms available. What happens is room rates go up, profit goes up, so there's the positive message long term.”