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IRVINE, CA-The dollar volume of hotel sales in California climbed by a record-breaking 76% to more than $3.1 billion in the first six months this year and the number of deals larger than $5 million rose by 26%, according to Atlas Hospitality Group. The president of Atlas, Alan Reay, tells GlobeSt.com that the dollar volume increase and the 26% increase in deals larger than $5 million are tied together.

“A lot of institutional players are trading and a lot of trophy properties are changing hands, so they are bigger properties,” Reay tells GlobeSt.com. He notes that the 76% increase in dollar volume for the first half of this year occurred with only a 9% increase in the number of transactions.

The twice-yearly report by Atlas compares hotel sales in the first six months of this year versus sales in the first six months of 2005. Reay notes that the soaring dollar volume this year follows a similar dramatic year-over-year increase in the first half of last year, although he’s doubtful that the increase will continue through 2007.

“There is still a lot of money is chasing very few deals, and the economic fundamentals in California have helped hotels to come roaring back,” Reay says. With hotel revenues way up, “buyers are buying into that upward momentum, hoping to capitalize on the rising revenues. We’re seeing deals sell at five caps and four caps,” Reay says.

The Atlas Hospitality president foresees a slowing of the pace in 2007. “By then the properties that were going to trade will have traded,” he says. “In 2007 we will probably see a dropping off of the dollar volume and a flattening out of the transaction volume.”

The Atlas report shows that Southern California led the industry with almost 59% of the state’s 192 transactions and more than 60% of the total dollar volume. Los Angeles County bucked the statewide trend, however, with the total number of sales rising 15% and the dollar volume dropping by 31%. The largest transaction in the county for the first six months of this year was the $88.4-million sale of the Westin Long Beach.

A more typical market was San Diego County, where the total number of sales increased by 12% over last year and the total dollar volume climbed more than 148%. In Orange County, the number of sales increased by only 13%, but the total dollar volume jumped by 629%. The county also registered the single biggest sale in Southern California with the $330-million price paid for the Ritz Carlton Laguna Niguel.

In the Inland Empire, which has been posting increases in nearly every measurement of commercial real estate growth, Riverside County bucked the statewide trend with a 39% drop in the number of sales and a drop of 53% in dollar volume. But in SanBernardino County, the number of sales increased by 60% and dollar volume climbed 101%.

Although Southern California grabbed most of the sales and dollar volume, the total number of sales in Northern California was up 18% over last year and San Francisco County claimed the highest increase in dollar volume, up 2,661%. The county also claimed the single largest California sale with a $440-million deal for the Westin St. Francis.

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