Hotel purchases boom as us commercial property picks up

Investors are coming back to the hospitality market in force, as demonstrated by transactions occurring from Coast to Coast this week. A vintage California property and a hotel in the nation's capital are the latest signs of heightened interest.

In Santa Barbara, Calif., 35 State Street Hotel Partners snapped up the Hotel Californian, (pictured), developed in 1925, and two neighboring parcels from M.F. Santa Barbara L.L.C. The company will transform the fully entitled site in the city's State Street Waterfront district into a mixed-use lodging destination. The three parcels, totaling approximately 2.3 acres known as Entrada de Santa Barbara, will become home to a 114-room Spanish Colonial Revival-style luxury hotel, nine fractional vacation units and 21,557 square feet of retail space.

Nearly 3,000 miles to the east, Hersha Hospitality Trust entered into an agreement to purchase the 152-key Capitol Hill Suites in Washington, D.C. Valued at $47.5 million, the deal involves assumption of $32.5 million of existing debt plus $15 million in cash. Located in the bustling Capitol Hill submarket, the hotel sits amid landmarks that generate a steady stream of business and leisure travelers, such as the Library of Congress, National Mall, Smithsonian museums and the Capitol itself. The property underwent an $8 million upgrade in 2008, so Hersha has no plans to make major changes in the immediate future.

Senior executives predict that the hotel deals will keep coming. "After protracted dislocation and losses, transaction activity in the hotel real estate sector is regaining vigor," Arthur Adler, managing director and CEO-Americas for Jones Lang Lasalle Hotels, noted in a statement accompanying the results of the firm's most recent hotel investor survey. "Hotel markets are heating up across the Americas. Now that operating fundamentals have clearly turned the corner, buyers are becoming increasingly aggressive as they seek to establish a foothold at historically low purchase prices."