Chinese fuel California hotel deals, demand
 
Chinese fuel California hotel deals, demand
24 MARCH 2014 6:15 AM

Record demand means it’s a good time to be a hotel owner but tougher to be a hotel buyer, panelists said during a recent San Diego event.


SAN DIEGO—Healthy numbers of Chinese tourists with cash to spend will continue to boost hotel occupancy nationwide, contributing to record prices for prime properties, according to industry experts meeting last week in San Diego.
 
Some 97 million Chinese traveled overseas last year, and that number is expected to rise by 14% in 2014, said Robert A. Rauch, president of R.A. Rauch & Associates, which sponsored a panel last week titled “Onward & upward: A lodging industry forecast for 2014” at the Hilton Garden Inn San Diego/Del Mar. The way Rauch sees it, roughly 10% of those travelers will come to the United States, spending an average of $8,000 per person for stays of a week or more. For a city such as San Diego, that could mean enough bookings to fill 700,000 hotel rooms each year—or 12 times the impact of Qualcomm, which is the largest driver of accommodations in San Diego. 
 
“We have one heck of an opportunity there,” Rauch said.
 
It’s not just the Chinese that are driving a recovering market. Rauch noted U.S. revenue per available room grew 5.4% in 2013 and is forecast to jump 5.3% in 2014 and 4.7% in 2015, according to data from STR, parent company of Hotel News Now. RevPAR growth year to date through February was up 19.9% in San Francisco/San Mateo and up 12.1% in Anaheim/Santa Ana, and 10.6% in Los Angeles/Long Beach, according to STR.
 
Sandra Shapira, director of sales for TravelClick, said her company’s 12-month occupancy outlook calls for jumps of nearly 14% in Tampa, Florida; nearly 11% in Denver; 9% in Atlanta; and just shy of 9% in San Francisco and San Diego. And that is helping to shoot hotel prices to record levels. Occupancy in the nation’s largest markets combined is forecast to grow by 4% this year, she said.
 
“It’s a good time to be a hotel owner, maybe a little tougher to be a hotel buyer,” said Alan Reay, president Atlas Hospitality Group.
 
Reay noted that when the Hotel del Coronado sold in 2007, it set a record when it fetched an average of more than $1 million per room. In 2012, five hotels in the United States were either sold or refinanced with a value of more than $1 million per room. In 2013, that number was more than 20 hotels.
 
“Two hotels in Santa Monica, the Casa del Mar and the Shutters (on the Beach), were just refinanced at debt of $1.5 million per room. So their appraised values have come in at over $2 million per room,” Reay said.
 
The dollar volume of transactions in California was up 35% last year, and the median price per room increased by more than 17%, according to Atlas’ “California hotel sales survey year-end 2013.” In San Diego, the median price per room for hotels that sold in 2013 jumped by more than 40%.
 
Guy Maisnik, a partner in the Global Hospitality Group at Jeffer Mangels Butler & Mitchell, said, “The level of Chinese investment is significant,” and pointed to the $96 million cash paid for the Sheraton Gateway near Los Angeles International Airport last year and the $150 million shelled out for a prime block in downtown Los Angeles.
 
“If this conference were in Los Angeles, a third of this room would be Chinese, or very close to it,” Maisnik quipped. “They’re in on every deal I’m on.”
 
More than capital from China is driving the upward swing in sales, the panelists said. 
 
“What’s driving the value?” said Maisnik. “It’s the lack of everything else. I mean most of the folks that have dollars are seeing the inflation that is going on everywhere, pent up demand. … Those folks cannot hold their capital. It’s got to go somewhere.”
 
Maisnik added: “It’s simply because there needs to be a home for this capital. Capital has been held back a long time during this recession. And now, the floodgates are open.”
 
This led many in the audience to ask: Is the industry headed for a bubble?
 
Noting that commercial mortgage-backed securities loans are loosening up, Gary London, president of The London Group, wondered if deals “are going to levels that are just not sustainable.”
 
“The question we really need to be asking is how much can demand really increase?” London said. “I just see danger points … when I see these kinds of record-setting numbers; it concerns me.”
 
For those who operate hotels, though, the numbers remain reassuring. But the industry will have to tweak its approach to capitalize on coming changes.
 
“Millennials, according to Marriott (International), will represent—along with the Gen X’ers—70% to 80% of their business in five to 10 years,” Rauch said. “They are the future. So we are building spaces for their social hubs, which they like.
 
“They don’t like those old staid hotels. They want something fresh,” he continued. “They want something where they connect, or they have good food and beverage, and we’ve had to adapt. All of us have to adapt because they have different needs. They’re wired; they’re web savvy, and they believe in word of mouth.”
 
Maisnik noted that Chinese, along with the well-to-do from Mexico and Europe, like to shop. Placing hotels next to and marketing them with large shopping malls makes good business sense, he said.
 

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