A number of major L.A. hotels have changed hands recently, highlighted by the $68 million sale of the luxurious 124-room L’Ermitage Beverly Hills, which drew what could be a record price for the Los Angeles market.
The five-star hotel was bought by Singapore-based Raffles Holdings Ltd. from a subsidiary of Credicom Asia Ltd.
Most other hotel sales activity has been centered around Los Angeles International Airport and Santa Monica, where occupancy rates topping 80 percent have made hotels increasing attractive acquisition targets.
“I don’t think I’ve seen that much activity and turnover of major hotels in any other market in California,” said Jack Westergom, managing partner at Westergom & Associates, a hotel industry consulting firm.
Though hotel occupancy and room rates in L.A. are already at some of the highest levels in years, most experts expect both will continue to rise, especially in the luxury and business sectors of the market. That growth will be fueled by the strong economy and a dearth of local hotel construction caused in part by difficulties in getting financing on Wall Street.
In recent years, hotels have seen their average daily room rates growing at twice the rate of inflation, making it a strong time to cash out, according to Westergom. But with little construction in the pipeline and the economy going strong, it also appears to be a decent time to buy.
“The returns on things are just astronomical right now,” Westergom said. “There’s a lot of upside in selling and buying these things.”
Westergom believes the large amount of activity around LAX also reflects the maturity of L.A.’s economic expansion.
“The LAX market is not as sexy as Marina del Rey, Santa Monica or Beverly Hills. Because of that, cyclically, that’s the tail on the dog. Those are the last assets people take a look at,” Westergom said.
The sale of the five-star L’Ermitage Beverly Hills was part of a larger transaction in which owner L.A.-based Colony Capital LLC sold its interest in Credicom Asia Ltd., including L’Ermitage. Raffles International will manage the hotel as the Raffles L’Ermitage Beverly Hills.
Meanwhile, the Marriott LAX, with 1,010 rooms, is part of a four-hotel, $274 million portfolio sold by Marriott International Inc. to Capital Hotel Investments LLC, with Marriott continuing to manage the facilities.
In other deals, The Pacific Shores in Santa Monica, with 168 rooms, has been sold by Sunstone Hotel Investors Inc., a San Clemente-based real estate investment trust, to Chicago-based Elkor Realty Corp. for around $26 million.
Elkor expects to boost average daily room rates, after doing some rehab work, from roughly $100 to more than $200 per night, said Gregory Schem, managing partner. Elkor has now carved out a portfolio of boutique hotels in the area’s prime markets, including the Avalon Hotel and the newly opened 46-room Maison 140 on Lasky Drive in Beverly Hills.
After the Pacific Shores sale, Sunstone sank the proceeds into buying Embassy Suites LAX, with 215 suites, from Felcor Corp. for $24 million. Also in the LAX area, Wyndham Los Angeles Airport, with 594 rooms, is weeks away from closing escrow on its $26 million sale to San Diego-based Pacifica Enterprises Inc.
