SHC Park San Francisco is a subsidiary of Strategic Hotel Capital LLC, a private company whose principal shareholders are affiliates of Goldman, Sachs & Co. and investors advised by Prudential Real Estate Investors. The purchase price, which was not disclosed by the parties involved, is believed to be approximately $126 million, or about $350,000 per key.

The sale represents the third San Francisco hotel sale in the past 45 days and the sixth in the past six months. Alan Reay, founder of hotel brokerage firm Atlas Hospitality Group tells GlobeSt.com that San Francisco's trophy hotels are changing hands because owners who were burned by the dot-com crash and 9-11 are achieving record low cap rates as investors buy into projections that the market will continue to rebound."Buyers are saying the Downtown market has extremely high barriers to entry such that even at $350,000 per key, that's arguably only replacement cost if you could find a site," says Reay. "They also see very little development in higher-end full-service properties, which should help force rates up as occupancy continues to improve, and they are still able to borrow at low interest rates."On April 20, Ashford Hospitality Trust of Dallas closed on its acquisition of the 338-room Pan Pacific San Francisco Hotel for $95-million, or $281,065 per key, and re-branded the property a JW Marriott hotel. That same 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.

Earlier in April, publicly held Strategic Hotels & Resorts Inc. of Chicago signed an agreement to acquire the historic 1,195-room Westin St. Francis hotel on Union Square for $440 million, or $368,200 per key. The sale is expected to close this quarter. At the end of March, the Argent hotel on Third Street between Market and Mission was sold for $178 million or $258 per key. It may be converted to a Westin, according to local sources. Finally, the 110-room Campton Place Hotel, which sits on the Embarcadero near the Griffon Hotel, sold in November for $400,000 per key.

Buchanan Street Partners SVP Curtis Davies, a hotel broker, told GlobeSt.com last month that with occupancy healthy and rates climbing, investors are basically betting that local hotel room rates will catch back up with New York City. The two cities had the same rates and occupancy when the market peaked in 1999-2000 but now are far apart. In 2005, according to PKF Consulting, 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," he said.

HEI Hospitality owns 28 hotels. The Park Hyatt was acquired by HEI Hospitality Fund II, a $425 million discretionary equity investment vehicle. Merritt Hospitality, a wholly owned HEI subsidiary, will operate the hotel. It is the first Le Meridien to join Starwood's family of hotels since Starwood acquired the brand in November 2005. HEI says the hotel will see $10 million in upgrades beginning in late 2007 and take five years to complete. The renovation will include refurbishment of the guest rooms and all of the food and beverage outlets.

"San Francisco hotels are in what is forecasted as the early phase of a substantial rebound and with the upgrades and re-branding we have planned, our goal is to generate new enthusiasm for the hotel within its competitive marketplace," says HEI chief executive Gary Mendell. Adds the company's EVP of acquisitions Steve Mendell, "This is our fourth West Coast acquisition in the past 16 months, and we continue to view the region and San Francisco, specifically, as prime markets for further investment. We have an active pipeline of acquisition and development projects and remain on target to invest up to approximately $1.5 billion in hospitality assets over the next three years."

Instant Insights /

Park Hyatt Sells, Becomes Le Meridien

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