SAN FRANCISCO- The Dallas-based hotel REIT Ashford Hospitality Trust Inc. has agreed to acquire the 338-room Pan Pacific Hotel San Francisco for $95 million or $281,000 per key. The transaction is expected to close within 45 days. The seller is a joint venture of Whitehall Street Global Real Estate Limited Partnership 2001 and Oxford Lodging Advisory & Investment Group LLC that reportedly acquired the property in 2003 for under $50 million.

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 and be rebranded “with a well known luxury flag.” 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 twelve-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 is predicting its new San Francisco property will 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 says. “San Francisco will be one of the preeminent growth markets in the US.”

Bennett says the hotel’s competitive set has experienced RevPAR increases of close to 25% over the last six months 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, we believe we have a tremendous opportunity to outpace the expected strong growth in the San Francisco market,” he says. “We also intend to explore the value-added possibility of converting the existing Executive Conference Center to a high-end bar/restaurant, retail or downtown day spa concept later in the year that would further enhance the growth of the hotel.”

Ashford has put up $4 million of non-refundable earnest money, according to the related SEC filing. Ashford would own the hotel but not the dirt beneath it. The long-term ground lease expires in 2083. The ground lessor is the Olympic Club, a California nonprofit corporation that had a right of first refusal to acquire the property that it did not exercise.

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