SAN JOSE — The market for hotel purchases has nosedived in both the Bay Area and California, in a sign that investors believe the weakness in the lodging sector has yet to run its course.
Measured by dollar amount, acquisitions of hotels plunged by 48.3% in Northern California and by 60.2% in Southern California, Atlas Hospitality reported. The Northern California market includes the Bay Area.
Statewide, hotel purchase activity plummeted 56.3% in 2023 in California. This represented the second-worst decline ever documented by Atlas Hospitality Group, which tracks the lodging industry in the state.
Spartan Village at The Paseo, a former hotel tower that a real estate firm has bought and plans to convert into SJSU student housing. (George Avalos/Bay Area News Group)
These were the highest-priced hotel deals in the Bay Area in 2023, according to the Atlas Hospitality Survey:
— Claremont Hotel Club & Spa in the Oakland-Berkeley area. The 276-room hotel resort was bought for $163 million.
— Signia by Hilton South Tower in downtown San Jose. The 264-room southern tower was bought for $73.1 million. It’s being converted into housing for San Jose State University students.
— Hotel Zoe in San Francisco. The 221-room hotel was bought for $68.5 million.
The decline in sales activity is a result of hotel buyers staying on the sidelines at a time of economic uncertainty and murky prospects for the lodging sector, according to Alan Reay, president of Irvine-based Atlas Hospitality Group.
“Most investors are in a wait-and-watch situation,” Reay said.
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In 2023, Northern California hotel purchases totaled $1.45 billion, down from the 2022 total of nearly $2.8 billion.
Southern California hotel purchase deals had a value of $2.31 billion in 2023, down from $5.8 billion in 2022.
California hotel purchases totaled a combined $3.76 billion, compared with nearly $8.6 billion in 2022, according to the Atlas Hospitality survey.
Some hotels tumbled into foreclosure during 2023 in some instances, while in other cases, hotel property owners simply walked away from making makings and gave the keys to their lenders.
In the wake of the coronavirus outbreak in early 2020, state and local government agencies imposed wide-ranging business shutdowns to combat the spread of the deadly bug.
The lockdowns, in turn, throttled economic activity in countless ways. The lockdowns curbed air travel and chased away tourists, business people and local patrons from staying in hotels.
Even after the lockdowns were ended as the coronavirus faded away, the lodging sector has battled to recover from the shutdowns.
Reay believes the hotel market in the Bay Area and statewide could become worse before it gets better.
“If interest rates come back down, then we will see sales activity pick up and values will stabilize or move up,” Reay said. “If interest rates do not decline, we may start to see more distressed sales. That will create downward pressure on values.”
