It’s a good time to be in the hotel business.
“You have investors who went through a very tough time, and they are seeing a way to get out and make whole a bit,” said Chris Parker, a commercial real estate broker for Radius Commercial Real Estate. “On the buy side, they are seeing inflation is coming and average daily rates are going up. They are both right. There are two different mindsets going on.”
“Hotels rarely trade hands,” Herlihy said. “To be frank, a lot of hotels have been owned for a long time. Owners have not been motivated to sell. With that pandemic coming down, people want to take their chips off the table.”
In 2021, billionaire Bill Foley purchased the Hotel Californian for $130 million. The 75-room Hotel Santa Barbara sold for $42 million. The Hotel Indigo was sold in an all-cash transaction and was listed for $19.5 million. AWH Partners purchased the Kimpton Goodland Hotel, along with four other properties throughout California for $240 million.
“AWH is thrilled to diversify our expanding portfolio of attractive hotel properties and deepen our exposure to high-growth West Coast markets with the addition of the Goodland Goleta hotel, another asset acquired at an extremely attractive basis we would never have been able to achieve pre-pandemic,” Russell Flicker, co-founder and managing partner of AWH Partners, said in a prepared statement. “With minimal new supply, a general lack of available sites and costly land prices, the Santa Barbara market has high barriers to entry, and we are pleased to have found this attractive opportunity, which was never offered to the public on the same terms. We look forward to renovating the lifestyle hotel and welcoming guests to this highly accessible leisure destination.”
Hotels are also attractive because owners and managers are able to raise the hotel rates as needed, in the context of the status of the economy and the overall market. Interest rates also have been low.
In Santa Barbara, it’s a hot market because the coastal town is an attractive destination for travelers from San Francisco and Los Angeles. It’s a driving destination that offers a steady supply of tourists. In addition, Herlihy and Parker agreed, Santa Barbara has long been a destination for European travelers, and as COVID-19 cases continue to drop, it’s likely that travel will pick up. During the height of the pandemic, after the total lockdown, occupancy on the South Coast dropped by about 50%.
“Santa Barbara has always done really well with Europeans travelers,” Herlihy said.
Santa Barbara’s hotel boom was highlighted by the sale of the Hotel Californian.
The 121-room hotel at the corner of State and Mason streets features paseos, gardens, a rooftop pool, event deck, a ballroom and Moroccan-inspired spa and saloon, event spaces, a fitness center, a fashion boutique and restaurants. The site sat as a massive hole in the ground, along with nearby parcels, until it reopened in a transformative rebuild in 2017.
“You have to credit that lower State Street redevelopment, now the Funk Zone, all being triggered once the Hotel Californian was built,” Parker said.
Herlihy added that the Franciscan Inn, also in Santa Barbara, is expected to close in a sale later this year.
Kathy Janega-Dykes, president and CEO of Visit Santa Barbara, also said that hotels on the South Coast have experienced success that others in the rest of the state have not.
“Hotels along the South Coast performed surprisingly well compared to their peers in other markets,” Janega-Dykes said. “Revenue per available room, a common metric used by hotel managers, increased locally by 21% from 2019 to 2021. This compared to California overall, where the same metric decreased by 27%.”
She said the Omicron variant wave of COVID-19 caused a short-term setback that appeared less severe than earlier waves of COVID-19. However, 19% fewer rooms were rented along the South Coast in January 2022 than in January 2020, before the pandemic began.
“This was a meaningful slowdown from last fall when overnight visitors had returned to Santa Barbara at pre-pandemic levels,” Janega-Dykes said.
Hotel average daily rates in January 2022 were $266 along the South Coast, compared with $211 in January 2020, Janega-Dykes said.
“This improvement made up for our decrease in overnight visitors during the Omicron wave, supporting hotel businesses, their employees and local governments that rely on visitor taxes for public services,” she said. “This strong rebound in hotel rates again showed that travelers place a high value on trips to Santa Barbara for our outdoor lifestyle, temperate weather and quality restaurants, wineries and cultural attractions.”
She said she expects more good news for hotels and the travel industry soon.
“Thankfully, as COVID-19 cases drop across California, momentum is already improving for leisure and business travel,” she said. “Hotel occupancy and passenger counts at Santa Barbara Airport are gradually growing again. Visit Santa Barbara is optimistic for the approaching Presidents Day weekend and spring break period.”
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