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

The Manchester Hyatt could sell for $580 million, with the San Clemente-based Sunstone Hotel Investors REIT as a prospective buyer, according to a recent stock market research report by Milwaukee-based Robert W. Baird & Co. Regardless of whether that deal goes through, hotel sales in general will continue to rise compared with last year's figures, Reay tells GlobeSt.com.

The $631.3 million of California hotel sales in the first six months of this year compared with $247.5 million for the first half of 2009, according to the Atlas Report. "We see sales volume continuing to pick up during the second half of 2010. We could see individual transactions doubling the number from 2009," Reay says.

Atlas had forecast that sales would rise sharply in both number and dollar volume this year because sales plunged to a record low of 92 transactions and $525 million in dollar volume for all of 2009. Its report says a number of factors contributed to the increase in sales volume, including improved RevPAR in most major markets, buyers adjusting their price expectations, a "general consensus that the worst is behind us and so postponing purchasing does not necessarily lead to a better price."

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

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

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

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

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