It’s been a slow start to the year for hotel sales.

During the first six months of the year, individual sales in Los Angeles County decreased by 6% while dollar volume declined by a much larger 79%, according to data from Atlas Hospitality Group.

“The smaller hotels, which trade for lower prices, are still being actively traded because financing for those acquisitions is still available, so we are seeing those transactions still occurring but the larger hotels… their numbers are down dramatically,” Alan Reay, president of Atlas Hospitality, said.

“It’s been muted for the last two years just like the other real estate types,” Tony Muscio, a senior managing director at Jones Lang LaSalle Inc., said of hotel sales.

He added that he was mainly seeing select-service hotels sell “because of their lower cost structure.”
“They’ve historically had higher cap rates but there’s a lot of potential on the horizon for an increase in hotel performance and transactions,” Muscio said.

One of the issues affecting sales, experts agree, is a disconnect between buyer and seller expectations.

“Some of the owners are looking at what the market was,” Reay said. “There’s a big disconnect.”

“There’s a bit of a bid-ask spread,” Muscio agreed, arguing that high interest rates are a major factor. “When those interest rates come down we can get back to more of an equilibrium.”

Reay added that a lot of the bigger assets “have very little equity left,” further hurting hotel sales.

“With larger hotels, the prices which buyers are willing to pay is lower than the debt on the property,” Reay said. “Those owners that are trying to sell, it’s a struggle because the value is less than what they owe.”

One other issue hotels have had to contend with in the city of Los Angeles is Measure ULA, also known as the Mansion Tax. Measure ULA places a transfer tax on most properties sold for more than $5 million.

Reay said the tax has “really hurt sales.” He added that increasing costs to operate hotels has also impacted the industry – especially when it comes to labor.

“It doesn’t seem like a day or two go by without someone announcing that they are going to have a hotel strike,” Reay said.

Positive road ahead?

Still, there were some positives. The median price per room increased by 20.6%, according to Atlas Hospitality data.

And there were some big transactions. The Residence Inn Manhattan Beach sold for $68 million, the most of any hotel asset during the first half of the year in the county.

JLL represented the seller, Washington Holdings. Land and Houses USA Inc. purchased the 176-room property. Twenty Four Seven Hotels will manage the hotel.

“The addition of Residence Inn by Marriott Manhattan Beach to our portfolio continues the expansion of our management footprint throughout California,” the company wrote in a LinkedIn post at the time.

Experts expect sales to pick up.

“The Fed’s looking to cut rates and that could help all real estate classes, especially hotels,” Muscio said.

“We’re predicting the second half of the year the sales volume will be up quite a bit compared to the first half,” Reay added.

Muscio also expects to see more full-service hotels and larger transactions in the second half of the year. He added that a lack of new projects coming to the market right now could also help sales.

“On the demand side there’s huge potential in L.A. for higher performance on some really big marquee events,” he added, citing upcoming events such as the FIFA World Cup and the 2028 Olympic Games. “You have these big events coming up which is really going to spur travel to L.A. and get a lot of big media attention.”