Ashford acquired the 21-story hotel but not the dirt beneath it. The long-term ground lease it assumed expires in 2083. The ground lessor is the Olympic Club, a California nonprofit corporation that passed on its first right to acquire the property.

Built in 1987 at the corner of Post and Mason streets in the Union Square district, the hotel has 17,000 sf of meeting space, a conference center and two food and beverage facilities. On the heels of a $3.8-million renovation in 2004, Ashford officials say the hotel will see another $10 million in improvements between now and the end of 2007. The renovations, consisting of revenue-enhancing upgrades to meeting space, rooms and food and beverage facilities, will push Ashford's all-in cost to more than $310,500 per key.

The property generated revenues of $25.5 million for the calendar year 2005. On a trailing 12-month basis, the purchase price equates to a (net operating income) cap rate of 3.9%. On a forward 12-month basis, the purchase price equates to a (net operating income) cap rate of 6.5%.

The acquisition is the first in San Francisco for Ashford, which owns 13,558 rooms in 80 properties. Company CEO Monty Bennett predicted in February that its new San Francisco property would experience mid-teens growth in RevPAR in 2006. "San Francisco's hotel market is poised for a dramatic turnaround like that experienced in New York," he said. "San Francisco will be one of the preeminent growth markets in the US."

The hotel's competitive set experienced RevPAR increases of close to 25% between September and February while the hotel itself has shown only 12.7% growth. With the conversion to a well-known luxury brand, an excellent location and the significant upgrading of the hotel's amenities, Bennett believes Ashford has a "tremendous opportunity" to outpace the expected strong growth in the San Francisco market. To further enhance revenue growth, Ashford also is considering the possibility of converting the hotel's existing executive conference center to a high-end bar/restaurant, retail space or downtown day spa concept.

Several San Francisco hotels have hit the market or changed hands over the past six months as investors bet on a recovering San Francisco hotel market. Buchanan Street Partners SVP Curtis Davies, which recently brokers one of those hotel deals, told GlobeSt.com this week that with occupancy is healthy and rates climbing, investors are basically buying into the future.

"If you look back to the peak of the market, 1999-2000, our rates and occupancy were pretty close to that of New York City and now there is quite a disparity," he says, producing data from PKF Consulting that shows NYC had an average rate of more than $200 at 81.4% occupancy in 2005 while San Francisco's rate was closer to $128 at 71.8% occupancy. "If you believe it's only a matter of time before they are again more closely aligned, then it makes sense to invest in this market."

Earlier this week, Greystone Hospitality of San Francisco paid $15.25 million, or $246,000 per key for the 62-room Griffon Hotel, one of only three hotels located along the Embarcadero. The seller was Embarcadero Inn Associates LP, which purchased and renovated the hotel in the late 1980s before the Embarcadero freeway came down, opening it up to the waterfront and turning it into a thriving tourist hotel.

The nearby 110-room Campton Place hotel, one of the other Embarcadero hotels, sold in November for $400,000 per key. The Argent hotel on Third Street between Market and Mission was sold in late March for $178 million or $258 per key. It may be converted to a Westin, according to local sources.

Earlier this month, publicly held Strategic Hotels & Resorts Inc. of Chicago signed an agreement to acquire the historic Westin St. Francis hotel on Union Square for $440 million. The 1,195-room historic property fronting Union Square is being sold by an affiliate of the New York-based investment bank Blackstone Group that acquired the hotel in 2000 for $243 million. The sale is expected to close during the second quarter 2006.

The Four Seasons was recapitalized in a deal that valued it at $124 million or $450,000 per unit. Millennium Partners took out one of its capital partners and replaced it with another. The Park Hyatt is under contract and may become a Le Meridian, a brand recently acquired by Starwood.