LA County Hotel Sales Take a 53% Tumble in Early 2023

Atlas Hospitality Group has reported that Los Angeles County's hospitality sector is undergoing a significant shift, with hotel sales plummeting nearly 53% during the first half of 2023 when compared to the same period last year.

Challenging Times for Hotel Transactions

Only 17 hotel transactions transpired in the initial six months of this year, marking a considerable decline from the 36 sales recorded in the preceding year. Among the notable deals was the foreclosure sale of the Fairmont Century Plaza Hotel for a staggering $760 million, which included the hotel, retail spaces, and select condominiums in the Century City development.

Taxes and Interest Rates 

The city of Los Angeles implemented a new tax on transactions exceeding $5 million as of April 1. The effect was palpable, with only one hotel transaction surpassing the $5 million threshold during the second quarter compared to the usual 15 to 20 transactions during this period. The driving forces behind this transformation are multi-fold. Interest rates wield a considerable influence on transaction volumes. Even when consensus on price is reached, properties often face appraisal and financing challenges, creating further impediments in the transaction process.

Market Disruption and Prospects for Recovery

The intersection of rising interest rates and localized tax amendments has brought about significant challenges. Hotel sales across California have experienced a 53% statewide decline in comparison to the first half of the previous year, marking the most substantial dip in two decades, according to Atlas Hospitality Group's data. This downturn has surpassed the 51% decline experienced in the aftermath of the Global Financial Crisis in 2009.

Looking Ahead

Given these trends, it's anticipated that, barring federal intervention, further foreclosures could unfold throughout the year. Already, potential defaults on several properties loom in LA County, with five to six in the tracking pipeline, according to Alan Reay, President of Atlas Hospitality Group.