For the full year, the number of hotel sales slipped to 343 transactions compared with 390 transactions in 2006, but Reay tells GlobeSt.com that the number of sales for the first part of the year in 2007 was close to the number for the first part of 2006. During the last quarter of 2007, however, the number of sales plunged 50% compared with the last quarter of 2006. In addition, sales have dropped by 30% in the first quarter of this year.

Reay says that the slowing number and dollar amount of sales reflects three primary factors: The difficulty in obtaining financing at favorable rates and terms, the slowing and in some cases decline of RevPAR growth, and the "disconnect between buyers and sellers on price expectations."

Of those three factors, the biggest one right now is the difference between buyer and seller expectations, Reay says. Sellers today are turning down offers because they had higher offers for their properties last year, not realizing or wanting to admit that they can't get the same prices this year.

"What we have is a downturn in sales activity, which usually precedes a softening in prices," Reay says. "We've been in this kind of market before, and it probably will take the market 12 to 18 months to rebalance."

Reay calls this year a transition period for the hotel industry. His company forecasts that the total number of 2008 transactions will be down by more than 30% from last year. This equates to about 250 individual hotel sales, one of the lowest figures that Atlas will have recorded in more than 10 years of tracking California hotel sales. The Irvine-based consulting and brokerage firm also expects total dollar volume to decline by more than 30%, which would put 2008 at around $2.5 billion, almost 50% below the peak in 2006.

Nonetheless, Atlas sees some bright spots in the state's hotel market in 2007, including an 18% increase in the median price per room sold, a 9% increase in the average price per room and a 17% increase in the median price per room in Southern California. A few counties bucked the trend, too.

For example, Sacramento posted at a 125% increase in transactions to 18 sales and the county's total dollar volume climbed 155% to $132; Alameda County transactions increased 80% to 18 and total dollar volume went up 620% to $169 million; in Riverside County, the number of sales grew 17% to 27 and dollar amount rose to 154% to $329 million. But the results in those counties were for the most part carryover from 2006 into the first part of 2007, and the overall industry trend is clearly a slowing.

Los Angeles County was more typical of the trend, with a 27% decrease in the number of individual hotel sales to 59 and a 34% volume decline to $735 million. The largest sale in Los Angeles County, based on the number of rooms, was the 582‐room Radisson Hotel at Los Angeles Airport.

Reay explains that the decline in hotel sales mirrors the troubles in the financial markets, just as the peak sales in 2006 reflected the record low interest rates and readily available CMBS financing of that era. The peak sales of 2006 also reflected the hefty buying power of hotel REITs, which raised huge amounts of cash in the public markets.

Reay sees today's downturn as "not as bad as the downturn in the RTC days," a reference to the Resolution Trust Corp., the federal agency that operated from 1989 to 1995 to dispose of the foreclosed real estate assets of failed savings and loans. In today's market, by contrast, "We have very few, almost a minuscule number of foreclosures," Reay says.

"I don't anticipate this downturn is going to be as bad as then (the RTC era), and I don't think we're going to see the big price reductions we had then because we don't have the foreclosures," Reay says. Hotel operators have enjoyed steadily rising RevPAR numbers for a long while, but now they are "buckling down and watching their expenses because they don't expect to see double-digit RevPAR growth," Reay points out.