http://www.starwoodhotels.com/whotels/property/overview/index.html?propertyID=1153&PS=PS_aa_SSP_PNW_W_San_Francisco_POP_102908_NAD_FM
The W Hotel San Francisco is being sold to a Hong Kong investment firm for $90 million.
This deal marks the first hotel sale in San Francisco since 2007. Buyer Keck Seng Investments is paying almost $223,000 for each of the hotel’s 404 rooms.
One of the last hotel sales in San Francisco prior to the market downturn was of Campton Place Hotel to Taj, an Indian company, for $527,000 per key in April 2007.
While the price of the W might seem to represent a significant drop in value for San Francisco hotels, the selling price reportedly met Starwood’s expectations, sources say. Nor was the hotel a distressed property.
Starwood built the W in 1999 and has owned it ever since. It will continue to have a long-term management contract on the property — a necessary term of the deal.
The sale is part of a larger Starwood strategy to divest certain properties and focus instead on managing and operating rather than owning hotels.
“Selling this asset has nothing to do with the market or financial issues,” said Michael Pace, general manager of the W San Francisco. “It’s part of our growth, in fact.”
Starwood has said it plans to double its W brand to 60 hotels within three years.
The deal is expected to close at the end of July. Jones Lang LaSalle Hotels has been marketing the W since November 2008.
“The question in this market is always going to be did you undersell the property or not,” Pace said. “But at the peak of the market two years ago, was that truly the market value? I think the answer is no. People paid a lot in 2006 and 2007.”
Many of those highly leveraged, high-premium sales will have debt coming due in the next couple of years, and many industry watchers worry that could lead to significant issues as buyers look to refinance. This deal will likely be used as an appraisal benchmark.
The W sale “will have an impact and begin to price assets all over the city, and for that matter, the whole Bay Area,” said Bob Eaton of PKF Capital. “I don’t know what value it would have been at at the previous high mark in the open market. It could have been $450,000 a door, so the fact that this comes in at effectively half of that is not a surprising valuation in today’s market.
“Generally, values of hotels across the U.S. have taken a significant hit, and value is somewhat of an elusive thing. Unless there’s a transaction, it’s real hard to say what something would have been worth,” Eaton added. “This is a significant transaction for the Bay Area and specifically San Francisco because people will use this transaction to try to determine the value of other properties.”
Hotel consultant Rick Swig pointed out that since the San Francisco hotel market is not expected to grow again until 2011, this was perhaps a better time for Starwood to sell this property than it would be a year from now when operating income will likely have declined further.
“I think it’s a superb deal for both parties. It’s a very high risk time to buy a hotel, so it takes a lot of future vision,” Swig said. “(Keck Seng) paid probably less than 50 percent of the replacement cost, although on a cap rate which is more aggressive. They bought it on a seven cap in a nine or a 10 cap world,” Swig added, referring to the multiple of debt and risk used to value hotels.
