Hotel Online  Special Report
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 Summary of San Francisco Hotel Market;
Cap Rates, New Hotel Construction,
Occcupancy

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By Anwar Elgonemy, Vice President, Jones Lang LaSalle Hotel, San Francisco

San Francisco Commands Top Interest Among U.S. Cities

July 2005

     
  • An almost frenzied competition for assets has shifted cap rates down to their lowest level on record.
  • San Francisco has highest investor demand - there is extremely limited product on the market and the market has the highest imbalance of demand for hotels vs. hotels for sale.
  • In Jones Lang LaSalle Hotels’ most recent Hotel Investment Sentiment Survey, investors indicated that they targeted an average 8.9% cap rate for 18 top U.S. hotel markets, with New York, Hawaii and San Francisco at the low end. San Francisco is at 8.2%.
  • Given the steep reduction in NOI that most hotels have experienced, it is doubtful that any hotel in San Francisco trades at the above "targeted" cap rate - in fact, actual cap rates are more likely to be half that amount.


Overview of San Francisco Properties Valued
at Over $10 Million Sold since 2002

Property
Date 
No. of Rooms
Price per Room
Buyer
Sir Francis Drake
07/05
417
$120,000
Oxford Lodging
The Clift Hotel
07/04
373
$190,000
DivcoWest Properties
Pickwick Hotel
02/04
188
$75,000
LA Koreana
Pan Pacific Hotel
08/03
329
$137,000
Oxford Lodging
Vintage Court Hotel
07/03
107
$102,000
Executive Hotels & Resorts
Courtyard by Marriott
07/02
405
$202,000
CNL

New Construction Projects, Plus Two More Approved

  • 189-room Hotel Vitale opened in March and 276-room St. Regis set to open in November.
  • $195M, 550-room Inter-Continental targeted to open in summer 2007.
  • Two other projects have approval: 86-room Orchard Garden Hotel at 466 Bush Street and a 120-room extended-stay hotel at 301 Mission Street.
  • Re-development of Ferry Building/Embarcadero is energizing the Financial District.


San Francisco Hotel Projects since 2002

Hotel/Location
Total Development Cost
Total Cost per Room/ Opening Year 
Hotel Rooms
Inter-Continental/SOMA
$195,000,000 **
$354,000/in 2007
550
St. Regis Museum Tower/SOMA
$138,000,000 1
$500,000/in 2005
276
Hotel Vitale/Embarcadero
$53,800,000 **
$270,400/in 2005
199
The Argonaut/Wharf (reconfiguration)
$41,194,000 **
$163,000/in 2003
252
Omni/Financial District (reconfiguration)
$100,000,000 **
$277,800/in 2002
360
Guest Quarters/Financial District
$53,622,000
$151,900/in 2002
353
1 Estimate. ** Excluding land cost

Market Assessment – S.F. Occupancy
Projected at 75% for 2005

  • On the mend: San Francisco’s hotel market is in recovery after bottoming-out in 2002-03.
  • The overall hotel occupancy rate in San Francisco is projected to be 75% in 2005, about the same as 1995, before the dot-com run-up.
  • Overall city occupancy increased to 73.2% in 2004; ADR up by 1.7% to $147.
  • Nob Hill/Union Square/Moscone sub-market experiencing strongest increase in occupancy at +4.0% over 2004.
  • The increasing occupancy in San Francisco will have a pronounced impact on all western U.S. markets as discounting in San Francisco has been felt up and down the coast, and as far east as Denver.
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    Residential Conversions are Hot
    • San Francisco is newest target for residential conversions.  In 2004, Lennar Corp. began marketing the 144-room Hotel Cosmo to groups interested in converting it to a residential or timeshare property. The Cosmo ultimately sold to a company that currently uses it as leased housing for international students and corporate travelers.  Timeshare operator Cendant acquired the 107-room Hotel Juliana, turning it into timeshare.
    • East Bay developer Jim Hunter has acquired a 16-story building at 690 Market in San Francisco with plans to convert it into a mix of timeshare and condominiums totaling 106 doors. Among the possible operators is Ritz-Carlton.
    • In September 2004, a development group, the Rosetta/SRK Partnership, filed an application with the city seeking approval to convert the old Federal Reserve Building from offices to a hotel/timeshare. The property was recently bought by a wealthy Nevada family for $46.8 million, but with undecided plans for the building.
    • Former Giants owner Bob Lurie and his partners have taken possession of the 250-room Canterbury Hotel, potentially converting it to timeshare or condominiums.
    • Approximately 35,000 s.f. of excess space are being considered for conversion into timeshare at The Anchorage near Fisherman’s Wharf.
     
    Contact:

    Anwar Elgonemy
    Vice President
    Jones Lang LaSalle
    One Front Street, 3rd Floor
    San Francisco, CA 94111
    tel +1 415 456 1709  fax +1 415 421 7736
    Anwar.Elgonemy@am.jll.com

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    Also See: The Momentum of Hotel Transactions in the Current Low Cap Rate Cycle / Anwar R. Elgonemy / December 2004
    Profile of Hotel Ownership in the San Francisco Bay Area / Anwar Elgonemy / January 2004


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