IRVINE, CA-The number of hotel sales in California rose by 57%to and dollar volume climbed 155% to more than $631 million in thefirst half of this year, according to a new report fromIrvine-based Atlas Hospitality Group. Alan Reay, founder andpresident of Atlas, tells GlobeSt.com that the spike in hotel saleswas expected but that the first-half numbers for 2010 could beeclipsed if the 1,651-room Manchester Hyatt in San Diego issold.

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The Manchester Hyatt could sell for $580 million, with the SanClemente-based Sunstone Hotel Investors REIT as a prospectivebuyer, according to a recent stock market research report byMilwaukee-based Robert W. Baird & Co. Regardless of whetherthat deal goes through, hotel sales in general will continue torise compared with last year's figures, Reay tells GlobeSt.com.

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The $631.3 million of California hotel sales in the first sixmonths of this year compared with $247.5 million for the first halfof 2009, according to the Atlas Report. "We see sales volumecontinuing to pick up during the second half of 2010. We could seeindividual transactions doubling the number from 2009," Reaysays.

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Atlas had forecast that sales would rise sharply in both numberand dollar volume this year because sales plunged to a record lowof 92 transactions and $525 million in dollar volume for all of2009. Its report says a number of factors contributed to theincrease in sales volume, including improved RevPAR in most majormarkets, buyers adjusting their price expectations, a "generalconsensus that the worst is behind us and so postponing purchasingdoes not necessarily lead to a better price."

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Reay points out another factor: Overseas investors, public REITsand hedge funds have been very active purchasing hotels at very lowcap rates in A markets―as opposed to individuals andprivate investment groups. The REITs enjoy a low cost of funds andare buying at substantial discounts to replacement costs as well ason projections that RevPAR will continue to rise.

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Those are some of the reasons that Sunstone is reported to beconsidering the acquisition of the Manchester Hyatt San Diego.Baird's report says that the $580 million price tag, at $350,000per room "appears rich," but Baird sees the acquisition as a"win-win for stockholders" and rates the Sunstone stock as"outperform."

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Reay says that whether the Mancheseter Hyatt would be a rich buyat $350,000 room depends on how you look at it. The hotel is on aground lease, which might make the price look high, he explains,but the property is "an irreplaceable asset." RevPAR has been downin San Diego until recently, but it has increased by about 10% inthe past three months. On the other hand, the deal presents somerisk because of the huge number of hotel rooms in the market, Reayadds.

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The increasing RevPAR in San Diego and some other top-tiermarkets has been surprising, according to Reay. "In certain of themore expensive markets such as Newport Beach, Dana Point, SanFrancisco and the Westside of L.A., we are definitely surprised athow RevPAR has increased," he says. Atlas was expecting that RevPARincreases might be higher in lower-tier markets where the startingbasis is lower.

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Among the highlights of the Atlas report was the increase inlarger sales, those of $5 million and higher. The 20 sales above $5million in the first half of this year accounted for $536.8 millionof the $631.3 million. Reay notes that the three largest sales ofthe first half accounted for 40% of the dollar volume. Among thosewas the $90 millionsale of the 416-room Sir Francis Drake in SanFrancisco.

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