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

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Reay says that the slowing number and dollar amount of salesreflects three primary factors: The difficulty in obtainingfinancing at favorable rates and terms, the slowing and in somecases decline of RevPAR growth, and the "disconnect between buyersand sellers on price expectations."

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

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"What we have is a downturn in sales activity, which usuallyprecedes a softening in prices," Reay says. "We've been in thiskind of market before, and it probably will take the market 12 to18 months to rebalance."

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Reay calls this year a transition period for the hotel industry.His company forecasts that the total number of 2008 transactionswill be down by more than 30% from last year. This equates to about250 individual hotel sales, one of the lowest figures that Atlaswill have recorded in more than 10 years of tracking Californiahotel sales. The Irvine-based consulting and brokerage firm alsoexpects total dollar volume to decline by more than 30%, whichwould put 2008 at around $2.5 billion, almost 50% below the peak in2006.

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

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For example, Sacramento posted at a 125% increase intransactions to 18 sales and the county's total dollar volumeclimbed 155% to $132; Alameda County transactions increased 80% to18 and total dollar volume went up 620% to $169 million; inRiverside County, the number of sales grew 17% to 27 and dollaramount rose to 154% to $329 million. But the results in thosecounties were for the most part carryover from 2006 into the firstpart of 2007, and the overall industry trend is clearly aslowing.

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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 AngelesCounty, based on the number of rooms, was the 582‐roomRadisson Hotel at Los Angeles Airport.

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

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

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"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 pricereductions we had then because we don't have the foreclosures,"Reay says. Hotel operators have enjoyed steadily rising RevPARnumbers for a long while, but now they are "buckling down andwatching their expenses because they don't expect to seedouble-digit RevPAR growth," Reay points out.

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