Hotel deals are not dead. Hotel investor EOS Investors just purchased the Viceroy L’Ermitage Beverly Hills Hotel in what will be one of the largest hotel transactions of 2020. The 116-room hotel traded hands for $100 million through Keen-Summit Capital Partners, which brokered the deal.
Viceroy L’Ermitage Beverly Hills Hotel was purchased following a 1MDB multi-billion-dollar money laundering scandal that involved financier Jho Low, who purchased the property in 2010. The United States District Court for the Central District of California authorized the sale of the property with Michael M. Eidelman, Esq., Vedder Price P.C. serving as special master. The firm hired Keen-Summit Capital Partners to broker the deal. During the marketing period, Keen-Summit received more than 1,000 inquires, 800 non-disclosure agreements and more than 50 offers on the property.
The deal is a bright spot in an otherwise ominous-looking hotel market, which has been badly impacted by the pandemic. Hotel occupancies have fallen below 50% in many market segments, bringing investment activity to a near halt. However, there have been a handful of notable transactions this year. The LW Hospitality Advisors Q2 2020 Major U.S. Hotel Sales Survey reported six single-asset hotel transactions, which together totaled $246 million. The transactions totaled 1,459 hotel rooms, bringing the average sale price per room of roughly $169,000.
During the same period in 2019, there were 35 hotel transactions, according to the same report. The transactions totaled $2.6 billion and 9,100 hotel rooms, equating to an average sale price per room of $286,000. This is a decrease of 83% in investment volume and a 91% decrease in sales price. The price per room fell 41%.
The second quarter report from CBRE supported the deterioration of hotel market fundamentals. At the end of the second quarter, hotel demand was down 60% compared to pre-pandemic levels and ADR fell by 37.4% year-over-year. RevPAR fell even more dramatically by 75%. While we don’t have specific data on Viceroy L’Ermitage Beverly Hills Hotel, it is clear that luxury hotels are seeing the biggest decreases in occupancy and ADR. In the luxury segment, occupancy was near 10% in the second quarter. Prior to the pandemic, luxury hotels led the market in occupancy. In addition, Hawaii, Boston, San Francisco, Washington, D.C. and Orlando also had the most dramatic declines in RevPAR, down more than 90% compared to pre-pandemic levels.