Apr. 6, 2005 - The sales price for hotels soared along with the rest of California real estate last year and the upward trend is likely to continue, reports Atlas Hospitality Group in Costa Mesa.

Investors also closed a record 320 deals, spending more than $2.2 billion on hotels last year, a 23 percent increase over 2003. That follows an unprecedented 55 percent jump in dollar volume the previous year, according to Atlas's year-end reports.

Orange County accounted for nearly 19 percent of the state's total dollar volume, with 35 deals adding up to nearly $414 million. That's a 190 percent increase over last year's sales in the county.

The median price per room in Orange County jumped more than any place in the state -- up 24.8 percent to $66,667 per room.

Prices continue to climb largely because of growing strength in the hospitality industry and greater access to attractive financing, said Alan Reay, president of Atlas Hospitality, which monitors hotel transactions in the state.

Orange County hotels, for instance, reached a 71 percent occupancy rate last year with an average room rate of $114.57. That occupancy rate falls slightly behind the peak achieved in 2000, while room rates have surpassed 2000 levels.

"Investors are looking back at the past 12 months of revenue increases, as well as the upbeat predictions for the next 12 to 24 months," Reay said.

"They're keen to join in and capture some of the upside." It also remains cheaper to buy a hotel than to build a new one given the competition for land and ideal locations, Reay said.

After a busy building period in 2002, new projects have tapered off and many existing hotels invested in major remodels. The Hyatt Regency Newport Beach completed renovations last year, while the Ritz-Carlton Laguna Niguel plans to finish a $40 million upgrade this summer and the Newport Beach Marriott has a $60 million project under way.

The largest hotel deal in Orange County last year was the 489-room Irvine Marriott, which sold for $92.5 million. The 62-room Aliso Creek Inn, Laguna Beach, sold for $17.6 million, making it the most expensive in the county on a price-per-room basis -- $284,468 per room.

The highest-priced hotel in the state, the 261-room Ritz-Carlton Half Moon Bay, sold for $124.4 million, or $476,628 per room.

While hotel prices jumped in Orange County, construction stalled last year. The number of new rooms opened fell 65 percent compared to 2003, and new rooms under construction declined 26 percent.

Development is expected to slow down statewide for at least a year, giving the edge to sellers in the market. Fewer new rooms also could drive up the price consumers pay for hotel rooms, especially as demand increases in the tourism industry.

"Room rates are definitely going up," Reay said.

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