Hotels are becoming one of the biggest bargains in the CRE industry right now, at least in northern California. This week, the Sheraton Pleasanton Hotel was purchased by a partnership of realty investment firms Sethi Enterprises and Kapoor Enterprises.
According to an article in the Contra Costa Times, Sethi executive J.P. Sethi said the purchase price “was 30 percent below what you would have seen in normal times.”
Distressed hotel properties litter the landscape of northern California commercial real estate. According to the Times article:
The value of the Bay Area hotels in arrears on their property loans totaled $1.1 billion in 2009, according to a report by Real Capital Analytics.
That’s 12 times the $90 million in delinquent loans for Bay Area hotels in 2008, Real Capital estimated.
More hotels will become mired in foreclosures as the economy sours further, warned Alan Reay, president of Atlas Hospitality, which tracks the California hotel market.
“In California alone, we have 67 hotels being foreclosed on, and 320 in default,” Reay said. Both numbers are about five times the totals from a year ago, he estimated. “The number of hotel defaults is growing exponentially.”
Prices have melted down for hotels, he said.
“From the 2007 peak in values, prices for hotels have fallen 50 to 80 percent,” Reay said.
As lenders dangle foreclosed hotels before investors, the buyers have found some choice morsels.
“Investors are starting to feel we have reached or gotten near the bottom,” said Bose. “Prices are stable enough that you can see a good future with these investments.”
Here’s where investment dollars can make long-term cash. If you have staying power.