Investment Bank Strikes Deal to Sell Two Airport-Area Hotels
By ANDY FIXMER
Two airport-area hotels are under agreement to be sold for a combined $22 million in a deal that represents the further retreat by institutional owners from the ailing LAX market.
Credit Suisse First Boston has agreed to sell the 215-room Doubletree Club Hotel El Segundo-LAX and the 169-room Ramada Plaza LAX El Segundo to CCW Tri-Star Management LLP in a deal slated to close by the end of the month.
The price is two-thirds that which CSFB paid for the properties in the early 1990s.
"It's a sign of the times," said Alan Reay, president of Costa Mesa-based Atlas Hospitality Group. "After Sept. 11 there has been an extreme decline in business around the airport."
Earlier this year, Metropolitan Life Insurance Co. sold the 727-room Sheraton Gateway Hotel Los Angeles Airport to Kor Group for $44.1 million more than 50 percent below the building's $100 million replacement cost.
Average airport-area hotel room rates during March, the most recent month for which data is available, dipped to $73.73 a 9.4 percent decline from the $81.39 the same rooms fetched a year ago, according to data from PKF Consultants, a hotel industry tracking firm.
Despite the lower rates, PKF reports show March occupancy levels at airport hotels were down 1.5 percent compared to the same period a year ago.
The number of passengers flying into LAX is at its lowest level since 1996, according to data released by airport officials. Early gains this year in passenger traffic were wiped out by a dramatic drop in domestic and international air travel over fears of terrorist reprisals from the war in Iraq and the outbreak of a deadly flu-like virus in Asia.
"LAX is one of the most severely impacted markets in the Los Angeles area," Reay said. "The numbers have plummeted in gross profit and net operating income, and when the markets go down, people don't put the money back into the hotels."
But Norman Chang, a part owner of the Argyle Hotel in Hollywood and a partner in CCW Tri-Star Management, said the airport hotel market is in a "paradox." Even though rates are dropping, he said occupancy levels are hovering near 70 percent, which by hotel industry standards is respectable.
"We don't know for sure if this market has hit rock bottom, but we truly believe it can only get better," he said.
The group, financed in large part by Alhambra-based First Commercial Bank, is planning a $2.5 million renovation of the two hotels, Chang said.
Harry Wu, owner of several regional Budget Rent a Car franchises and president of CCW, said rates at the hotels will go up as occupancy climbs.
"When you have 80 percent occupancy levels, you can begin demanding higher rates," he said. "But when you don't have the business, you have to continue to discount and give away rooms at low prices."
The group is also planning an overhaul of the restaurant at the Doubletree, nestled in a business park with 55,000 employees with in walking distance. The group has hired a new chef who specializes in Asian fusion cuisine in the hopes of making the restaurant an attraction for lunchtime crowds.
"Usually people think of hotel restaurants as being boring," said Chang, "but we plan to give it some sex appeal."
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