Sources close to the deal say there is plenty of room to enter the San Francisco hotel market. A study conducted by Palmer Groth & Pietka confirms the city is facing a hotel shortage. San Francisco will be short roughly 1,000 rooms by 2006 and about 2,000 rooms short in 2008 unless additional hotels are constructed, the study finds.

The average daily rate for a San Francisco hotel room runs roughly $200 to $225 a night. Average rates in the city's Union Square range from $170 to $180 a night.

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