Hotel transactions in California picked up during the first half of the year, but distressed deals accounted for a significant portion of the total dollar volume.
The 2026 midyear edition of Atlas Hospitality Group’s California Sales Survey recorded 128 individual hotel deals during the first six months of 2026, a 13.3% year-over-year increase, representing 9,474 rooms, a nearly 4% increase. The total dollar volume grew by 17.2% to $1.63 billion.
When looking at hotel transactions priced at more than $5 million, there were 80 sales, a 29% increase, with 7,603 rooms, a 1.55% increase. The total dollar volume reached $1.52 billion, a 19.2% increase.
For the first time, the survey began tracking distressed deals this year.
“We were just seeing a lot of deals that we were talking to lenders on, and we noticed defaults filed and everything else,” Atlas President Alan Reay said in an interview.
Of the 128 hotel transactions recorded in the survey, Atlas identified 36 as a lender action, such as foreclosure, notice of default or a bankruptcy, in the period leading up to the sale. This amounted to 28% of all sales and 37% of the dollar volume.
The survey also found that two distressed sales amounted for a quarter of the state’s total dollar volume in sales. The Edition West Hollywood, at $211 million, was a deed in lieu of foreclosure and the largest deal in the state. The other deal was for the Stanly Ranch, Auberge Collection in Napa Valley in which Blackstone acquired the outstanding debt for $195 million.
The distressed deals were primarily the function of loans coming due, depressed property values and the borrowers not being able to obtain debt without having to pay out a large amount, Reay said. The cost of new debt is much higher now than when hotel owners borrowed their prior loans. In certain markets, such as the Bay Area, the hotels have been hit hard by a loss of office and convention business.
“But I would say first and foremost is really the cost of debt combined with cap rates going up and values coming down,” he said.
When looking at the total number of transactions in California, the average deal price was about $13.2 million, a 5.86% year-over-year increase. The median price was about $6.9 million, a 17.75% increase. The average price per key grew 21.6% to $182,179 while the median price dropped 8% to $133,927.
For deals over $5 million, the average price of a deal was $19.7 million, a 4% decrease compared to last year. The median price was $11.4 million, a 16% decrease. The average price per key was $226,513, a 28.4% increase, and the median price was $162,231, a nearly 2% decrease.
“We’re seeing some really eye-opening low prices that they’re trading for,” Reay said about deals that have not closed yet. “In a number of cases, that is due to the fact that the hotels are union-affiliated, and that has really impacted the net operating incomes and what buyers are willing to pay.”
In the deals lining up for July and August, there are properties being marketed and expected to trade for “a huge, huge discount” from where they sold 10 years ago, he said.
When looking at the difference in year-over-year sales price changes of hotels over and below $5 million, Reay said a big influence is the labor cost difference between larger properties and smaller ones. Hotels with 70 rooms or fewer usually aren’t unionized and don’t typically require a large workforce.
The larger properties have seen values pushed down because a lot of investors don’t want to deal with union hotels, he said. That means there’s a smaller buyer pool available. Also, there are some cities, Los Angeles in particular, that have implemented certain work rules and regulations for hotels with more than 60 rooms.
As he looks ahead to the rest of the year, Reay said he expects California hotels to continue trading at well below replacement costs. There are some buyers who will be attracted to that type of deal and move forward. Others won’t care how discounted a property is if they don’t think they can make money off it.
“If I'm paying for a deal that transacted at $300,000 per room, and I can now buy it for $50,000 to $60,000 a room, and I'm still going to be negative, then I'm not sure I want that,” he said.
One difference, however, he said is that some buyers continue to see apartment conversion opportunities. The cost to convert is still high, but there’s a certain basis point where it makes sense. Those seeking to convert to affordable apartments continue to prefer extended-stay properties that already have kitchenettes included in the rooms.
“I think that we're going to see some deals trading in the second half of the year that are going to be at really shocking low prices, and that's going to reverberate through the marketplace where it's going to impact values as appraisers come in,” he said.
That will eventually create more movement because owners will see the new low prices and realize they can’t hold out for a higher one any longer, Reay said. Lenders who have kicked the proverbial can down the road will also take some action.
“You're going to start seeing them go, and as I say to my lender clients, 'You might not like the price today, but it's certainly going to look better than it is in six to nine months' time,'” he said.