Sales of California hotel properties continue to be strong in the first half of the year, although cooled off from the first half of 2021, with most of the activity in the North Bay centered in Sonoma County, according to a company that tracks hotel sales.
The largest transaction on the report was the 58-room Dawn Ranch Lodge in Guerneville. It sold for $20.3 million, the equivalent of $350,000 per room.
Alan X. Reay, president of Atlas Hospitality Group, a Newport Beach-based commercial real estate firm specializing in the sale of California hotels, said there has historically been more available hotel properties for sale in Sonoma County than in Napa, Marin and Solano counties .
After Dawn Ranch, the next highest sale in the North Bay was the Motel 6 property in Rohnert Park, at $14.5 million. Three other Motel 6 properties sold for slightly lower, at $14.2 million, $14.1 million and $13.5 million, in Santa Rosa south, Santa Rosa north and Petaluma, respectively.
The next lowest price was for a Travelodge location in Fairfield, selling at $7.3 million.
And the lowest-priced transaction in the North Bay was $849,000 for George’s Hideaway in Guerneville, which shuttered.
Atlas Hospitality recently published its California hotel sales survey for mid-year 2022, which stated that “although sales cooled off somewhat during the first half of 2022 as compared to the record pace set during the same period last year, it still logged in as the second-highest number of sales on record and the third highest in terms of dollar volume.”
However, the firm is predicting a large drop in hotel sales in the second half of the year because of the rising cost of debt and uncertainty about the economy and the possibility of a recession.
Of the 18 hotel sales in the North Bay for the first half of 2022, 11 of the transactions were in Sonoma County; three were in Solano County; and two each in Napa and Marin counties.
In terms of hotel sales for 2020, the first year of the pandemic, transactions in the United States were down 53%, he said.
For example, hotel sales in New York, Texas and Florida were down 62%, 54% and 48%, respectively, in 2020.
Transactions were flat in California because about 84 hotels were sold to Project Roomkey, the state’s federally funded homeless relief initiative that ran from April 2020 until the end of the year. Otherwise, the state’s hotel sales would have been down between 30% and 35%, still comparatively lower than the three aforementioned populous states.
More broadly, Reay said among commercial real estate investments, hotels may be the best deal.
“The reason for that is hotels are a daily business” versus industrial, retail or office building leases, which can run between three and 10 years, Reay said. Even though costs go up on a daily basis, such as for labor and goods, a hotel is able to adjust what they charge on a daily basis, he said.
“Most people believe that and that’s probably why we’re seeing a lot of interest in hotel (sales),” Reay said. “It’s the best product to be invested in when we’re in inflationary times.”
Reay emphasized that Atlas Hospitality’s 2022 mid-year report should be looked at as a measure of six months against six months of the previous year.
“We’ll get a much better picture when we get the year-end survey,” he said.