Pebblebrook Pays $103M for 310-Room Hotel

SANTA MONICA, CA-The Bethesda, MD-based Pebblebrook Hotel Trust REIT has acquired the 310-room Sheraton Delfina Santa Monica Hotel for $103 million in the biggest hotel sale in both L.A. County and California this year. The REIT said that it plans to spend $9 million in guest room refurbishments and public area enhancements, with the work expected to begin within the next 18 months.

The deal tops the list of hotel sales in the state this year, according to founder/president Alan Reay of Irvine, CA-based Atlas Hospitality Group, although in one deal KSL bought the debt on the La Costa resort for $130 million. Reay says that the price of nearly $332,000 per room, although not a record, is at the upper end of what hotels are trading for and is a sign of the higher prices being paid for top-end properties.

“We’re finding that there are really two distinct hotel markets right now,” Reay says. “One is higher-end properties in A locations. Those are starting to trade in the $250,000 to $350,000-per-room range." The other market, for lesser-located and limited service hotels, commands considerably lower prices.

Pebblebrook bought the Delfina from a group headed by hotelier Brad Korzen that acquired a 60% interest in 2000 for $34 million and the remaining 40% interest in 2001 for $36 million. Built in 1972, expanded in 1984 and remodeled in 2005, the Sheraton Delfina underwent an approximately $11 million renovation in 2005. In 2009, the hotel operated at approximately 81% occupancy, with an average daily rate of approximately $179. During the next 12 months, Pebblebrook forecasts that the hotel will generate earnings before interest, taxes, depreciation and amortization of approximately $7.4 million to $7.9 million and net operating income after capital reserves of approximately $6.4 to $6.9 million.

Pebblebrook describes the Delfina as an “upper-upscale, full-service hotel” with more than 10,000 square feet of meeting space, two food and beverage outlets and a location close to the beach. Jon Bortz, Pebblebrook’s chairman, president and CEO said in the statement that the Santa Monica market is a highly popular year-round destination for the corporate transient and group markets, as well as the weekend leisure customer. He cited “extremely high barriers to entry in the market” among the factors favoring the location. The hotel will continue to be managed by the Viceroy Hotel Group, which has managed the property since 2003.