|
is experiencing the effect of a one-two punch of lower demand and rents and the recent rise in interest rates . The good news is that firms in the growing artificial-intelligence industry are leasing large blocks of space , signaling that San Francisco ’ s downtown appeal as a tech hub has not evaporated . The city historically has been a gateway for Asian corporate and leisure travelers and will again be when inbound international travelers return to pre-pandemic levels
. CRE IN THE CROSSHAIRS Earlier this year , it was
|
widely publicized that Park Hotels & Resorts had ceased making payments toward the $ 725-million non-recourse CMBS loan it secured by two of its San Francisco hotels , the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco . The debt was scheduled to mature in November 2023 and recently the hotels were placed into a court-ordered receivership . Although many sector sponsors have written off downtown San Francisco , there are visionaries , including EOS Investors , who recently acquired the 221-room Hotel Zoe Fisherman ’ s Wharf from Pebblebrook Hotel Trust for $ 68.5 million , or $ 310,000 per key , clearly an amount significantly below replacement cost . Additionally , earlier this year , a venture between Flynn Properties and Highgate acquired the shuttered 135-room Huntington Hotel in Nob Hill , with a plan to restore and reopen the historic property in 2025 .
Within downtown San Francisco ’ s office sector institutional owners , including Blackstone , Clarion Partners and Wells Fargo , have capitulated and price discovery has evolved due to several recent sale transactions of major buildings , at levels that are a fraction to replacement cost .
Examples include :
• 60 Spear Street for $ 40.9 million , or $ 260 per square foot , which equates to a 60 % discount from the price paid in 2014 .
|
• 350 California Street ( Union Bank Building ) for $ 61 million , or $ 205 per square foot , representing a 75 % discount from the asking price sought in 2020 .
• 550 California Street for $ 41.7 million , or $ 114 per square foot , equal to a 60 % discount from the price paid in 2005 .
• 201 Spear Street is reportedly going under contract at nearly 50 % less than what it traded for 10 years ago .
On the positive side :
• APEC 2023 United States is the year-long hosting of the Asia-Pacific Economic Cooperation ( APEC ) meetings , which is being held in San Francisco .
• Bayhill Ventures , a San Francisco-based real estate development and investment firm , has submitted plans for approval to build the city ’ s tallest residential tower , a 71-story tower at 530 Howard Street .
• San Francisco International Airport recently said that the number of international flights is now at 97 % of pre-pandemic levels , and should exceed 100 % by year ’ s end .
• The NBA announced that the Bay Area will host NBA All- Star 2025 .
• The NFL has awarded Super Bowl LX to Levi ’ s Stadium , in Santa Clara , Calif ., home of the San Francisco 49ers .
• Following uncertainty , Salesforce said that its annual
|
Dreamforce conference is returning to San Francisco in 2024 .
History has shown that often the best opportunities are discovered when markets are out of favor and the investor narrative becomes exceedingly pessimistic . For decades , San Francisco has experienced real estate boom and bust cycles . For many years that preceded the pandemic , San Francisco was a darling hotel market , typified by strong demand in all segments , healthy room rates and high barriers to entry for new lodging supply .
Smart money that is patient has already called a bottom and believes the market is ripe to acquire commercial real estate assets , including hotels , in San Francisco . Sponsors with cash and strong balance sheets are in an ideal position to purchase downtown properties with a “ buy low , sell high ” investment thesis .
Look for more buyers to come off the sidelines to further establish once-in-a-decade , market-clearing prices , which will ultimately spur more investment activity , while placing upward pressure on values .
Now is the time for long-term investors to jump in . Because while you can never perfectly predict the bottom , you can , ultimately , lose out on the opportunity .
Maybe Mark Twain said it best : “ You can ’ t depend on your eyes when your imagination is out of focus .”
|
Jan / Feb 2024 hotelsmag . com 43 |