San Diego hotel sales inch upward amid statewide slump

Even amid high interest rates and rising operating costs, hotels in San Diego County are selling a bit more briskly than in all of California, which is experiencing a continued slump in transactions.

The latest sales report from the Atlas Hospitality Group reveals lagging sales across the state during the first half of this year, down by 7% compared to the same period a year earlier. While the total dollar volume rose by 17% in California, the median price paid per room was down 2.5%.

Locally, seven hotels changed hands in the first six months of the year compared to six a year ago, but the number of rooms involved in those transactions rose exponentially, from 596 to 1,038, an increase of more than 74 percent, Atlas reported. That’s because there were a couple of pricey sales — the 288-room Residence Inn La Jolla, which sold for $79.3 million, and the 334-room Courtyard hotel in downtown San Diego, which went for $67.2 million.

In all, the sales volume for this year’s sales was $208.4 million, an increase of 114% over the first half of 2024, Atlas reported.

“We are still seeing strong demand for hotels in San Diego County because buyers see it as a good investment market for both commercial and recreational business,” said Alan Reay, president of Atlas. “The convention business has held up a lot better than other cities in California, and the diverse economic base has helped as well. For example, it is not heavily reliant on tech, as we have seen in the Bay Area.”

Still high interest rates and a disconnect between buyers’ asking prices and what sellers are willing to pay are key factors that are contributing to the decline in transactions, believes Reay.

“A lot of sellers are still expecting sales prices that hotels were selling for 24-36 months ago, when interest rates were much lower,” Reay said. “Now that interest rates have almost doubled, buyers cannot pay those same prices. With higher cost of debt and buyers wanting to get the same or higher cash flow returns as 24-36 months ago, the prices need to be lower.

“Also, in the case of the Bay Area, sellers are seeing offers that are coming in lower than their existing loans and so they cannot agree to those offers, unless their lenders agree to a ‘short’ sale.”

Interestingly, Reay observed, the largest hotel sales in three of the California counties — Los Angeles, Alameda and Santa Clara — were all lender foreclosure sales. Together, they accounted for a total of $218.18 million in sales volume, which is nearly 16% of the entire dollar volume through the first six months of 2025 for California, the report noted.

It’s likely that California will continue to see continued foreclosures given the current economic climate, especially so in the Bay Area and Los Angeles, Reay predicts.

San Diego, to a degree, should be immune to that, he added.

“San Diego is very unique as we are seeing no distress sales or notices of defaults filed on hotels,” he said. “It is a huge testament to the strength of the San Diego market and why investors want to be in this market.”