IRVINE, CA-Buyers spent a record $5.1 billion for hotel properties in California during 2006, a 13% increase over 2005, according to a new survey by Atlas Hospitality Group. Alan Reay, president of Atlas, tells GlobeSt.com that his company foresees the spending spree continuing, although he like many others wonders whether the subprime lending industry’s troubles will carry over into other sectors.

Reay notes that while his company’s annual survey covers 2006, the industry appears headed for another strong sales year, as illustrated by deals such as the $160 million sale of the Anaheim Hilton hotel, reported yesterday on GlobeSt.com. The hotel sales market in California this year thus far “shows no signs of slowing down at all,” Reay says.

“Lenders seem to still be very positive on the California hotel market and continue to offer very attractive rates, especially on prime hotel assets,” Reay says. As long as the California hotel market continues to enjoy steady revenue increases and new hotel construction remains relatively slow, “We see prices and transactions rising even higher in 2007,” the Atlas president says.

The year 2006 marked the first time that sales volume exceeded $5.1 billion in the 11 years that Atlas has been tracking sales. At the same time, the median price per room sold in California increased 8%, while the average price per room rose 17%.

Southern California often leads hotel industry surveys, but this time Northern California more than held its own, with “huge increases in the median price per room,” Reay points out. San Francisco County led the way, up 37%, followed by Alameda County at 29%, Sacramento County up 28% and Santa Clara County, up 21%.

Reay tells GlobeSt.com that Northern California has lagged behind the southern part of the state in recovering from the double whammies of the high-tech meltdown and the Sept. 11 terror attacks, which walloped the hotel industry. But in 2006, he says, the northern part of the state made up a lot of ground.

“A lot of people have jumped into the market and are paying historically low cap rates there” in anticipation of further improvement in the hotel market, Reay says of Northern California. “You are only now starting to see the numbers come back close to the levels that they were in 2000.”

A couple of markets in Southern California, however, bucked the trend toward higher sales in 2006. In Los Angeles County, the total dollar volume of reported sales dropped 28% to $1.1 billion while the number of individual hotel sales edged up only 8% to 81. In Riverside County in the Inland Empire, the dollar volume sank 46% to $129 million and the number of transactions dropped by almost 40% to 23 deals.

Reay says that conversations with hotel owners in L.A. and Riverside counties tell him that the reason for the decline in those two markets has to do with the way hotel properties are valued for sale. Typically, hotels sell on the basis of the income they generate for the previous year, the trailing 12 months income. Owners who are doing well in many cases would rather wait until they finish a record year and sell on the basis of that year to get a better price.

In some places, the number of sales dipped but dollar volume increased, as in Orange County, where the 28 transactions in 2006 represented a 20% decrease. But the total dollar sales volume was up 172% to $761 million in the county, thanks to deals like the $338.5 million paid for the 393-room Ritz-Carlton Laguna Niguel, the largest and most expensive Orange County hotel sale of the year.

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