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IRVINE, CA-Hotel sales in California fell dramatically both in number of transactions and dollar volume last year, a trend that will continue this year, a new report says. Alan X. Reay, president of Irvine-based Atlas Hospitality Group, tells GlobeSt.com that the hotel sales outlook for 2009 “is very dismal” and that when sales do pick up in the second half of the year the market will be dominated by distressed assets.

The number of hotel sales in California plunged by 45% to 187 in 2008, according to the new Atlas survey, which shows that the average price per room dropped by 20% to $97,391 and dollar volume fell by 39% to $2.1 billion. Reay says that although financing is surely a problem, “The bid-ask gap is what is keeping the properties from selling right now.”

Reay explains that the the bid-ask gap is related to how much equity or how much perceived equity the hotel owners still have. “A lot of owners don’t have any equity left, so they are trying to sell, but there are no buyers,” the Atlas president says.

The sales survey follows a recent study on hotel development that Atlas completed, a study that forecast a coming wave of foreclosures in California’s hotel industry that will involve a dramatic repricing of assets. One of the problems for buyers, aside from determining the true value of properties, will be financing.

“We’re going to lenders that we’ve done deals with in the past and they’re telling us that they’re out of the market for hotel lending,” Reay says. Even more lenders will exit the industry, according to the Atlas forecast, which says that lenders will look to sell their hotel loans, some at huge discounts, “to avoid foreclosing and becoming hotel operators.”

The annual Atlas report on hotel sales shows that every county in Southern California registered huge declines in average price per room in 2008 except for Los Angeles, which bucked the statewide trends in several respects. Although the number of sales in the county dropped from 59 to 39, the total dollar volume increased 46% to slightly more than $1 billion, the county’s average price per room increased 31% and themedian price per room rose 45%. In addition, Los Angeles County tallied the largest hotel sold in the state, the 802‐room Sheraton Gateway at LAX, and the most expensive, the $366.5 million sale of the 726‐room Hyatt Regency Century Plaza.

The fortunes of the state’s hotel industry declined even more in 2008 than Atlas had predicted early in the year in what, at the time, seemed like a gloomy forecast. The 45% drop in number of sales compared with a 30% drop forecast by Atlas, and sales volume totaled $2.1 billion, compared with the $2.5 billion that the company predicted.

Atlas expects that the number of sales in 2009 will slide by 10% to 20% from last year’s results, with prices “set to fall dramatically, between 20% to 40%.” Combined with last year’s results, the continuing slump is unprecedented, according to Reay. “We haven’t seen anything like this in the 20 years we’ve been in business,” the Atlas president says.

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