S.D. Hotel Sales Could Be Among Big Deals of 2004

S.D. Hotel Sales Could Be Among Big Deals of 2004



Funding for Major Transactions Appears to Be Loosening Up

BY CONNIE LEWIS

In the first half of 2003, San Diego trailed the rest of the state in the sale of hotel properties.






But that trend could be reversed since tourism began to ramp up in the third quarter nationwide, and expectations for continued improvement have lenders looking more favorably at hotel acquisitions, said Carl Winston, director of San Diego State University’s Department of Hospitality and Tourism Management.






According to a report by Costa Mesa-based Atlas Hospitality Group, one of the state’s largest hotel brokers, transactions in the county declined 25 percent in the first half of 2003, compared to the same period in 2002, while the dollar volume was off by 4.8 percent.






The numbers aren’t all in for the second half of last year. But recent sales of three big hotels , the Hotel del Coronado, the U.S. Grant Hotel, and the Hilton La Jolla Torrey Pines , will likely increase the dollar volume, said Alan Reay, president of Atlas Hospitality. The Del sold at the end of December to Florida-based CNL and a minority partner for nearly $400 million.






“The smart money will be on the big deals,” Reay said, “and this is a great time for hotels to sell.”






Lenders, who shied away from financing hotels during the industry downturn that followed the terrorist attacks of 2001 have changed their attitude since tourism began to ramp up nationwide in the third quarter of last year, Reay said.






Demand for lodging at full-service hotels is expected to increase by 6.3 percent nationwide in 2004 and to continue showing improvement through 2005, according to a report by Los Angeles-based PKF Consulting.






“Once the shock of the Iraq invasion passed, travel again increased,” the report stated.






While San Diego’s lodging industry has remained fairly stable in the last couple years, it is also expected to show improvement.






“Everyone in the industry looks at San Diego to be strong,” said Bruce Baltin, senior vice president of PKF.






There’s no data readily available on the names of lenders involved in recent San Diego hotel acquisitions. But it was reported that CNL obtained a $127 million mortgage loan to help finance a package deal that included the Hilton La Jolla Torrey Pines and the Capital Hilton in Washington, D.C., in mid-December.






Reay wouldn’t venture a guess as to how many hotels, big or small, might be sold in the county this year vs. 2003. Nor does he know of any particularly significant properties that are on the block.






“In a market like this, prospective buyers go knocking on hotel owner’s doors,” he said.






But he expects owners will now be more inclined to sell at prices buyers are offering, than they were a year ago.






“The lending climate is 180 degrees from where it was a year ago,” Reay said. “And when tourism rates increase, hotel values tend to go up, which means there is less opportunity for a buyer to make a return on his investment.






“So, I think sellers in San Diego will realize their expectations have to be more in line with what buyers are willing to pay.”






Marty Collins, president of Gatehouse Capital of Dallas, the developer of the W San Diego, which opened Downtown in December 2002, said he also expects the “gap between hotel sellers’ asking prices and buyers’ bid prices is closing.” A group of union pension funds owns 90 percent of the property.






“There’s a lot of capital available now to buy single assets and pools of assets, and there are a number of sellers across the nation,” he said.






In addition to Banks, Collins said the financial institutions currently offering hotel acquisition loans include life insurance companies, credit corporations, and pension trusts.






Yet he’s not so sure there will be many more San Diego hotels on the block this year than last.






“You’ll see institutions buying some existing assets,” he said. “But I think you’ll see more of an increase in development of new hotels.”






SDSU’s Winston disagreed.






“In the short term, I see more hotels changing hands than being built,” Winston said. “It’s time consuming to build full-service hotels. It takes anywhere from two to five years.”






He also predicted that the county’s supply of hotel rooms, which grows from 2 percent to 5 percent annually, could outstrip demand by 2006 or 2007.