Inland American Spends $113M on San Francisco Airport Marriott

By Barbra Murray, Contributing Editor

In a deal valued at $112.7 million, Inland American Lodging Group Inc. has acquired the San Francisco Airport Marriott in Burlingame, Calif., from Host Hotels & Resorts Inc. The transaction involved a $108 million price tag for the 685-room waterfront hotel and $4.7 million of fixtures, furniture & equipment reserve.

“I think it’s a realistic price,” Thomas Callahan, co-president & CEO-West with PKF Consulting USA, told Commercial Property Executive. “There will be a good return going forward for the purchaser, and for the seller, they’re making a nice profit.” The hotel will continue to operate under the management of Marriott International Inc., courtesy of a long-term contract.

Carrying the address of 1800 Old Bayshore Hwy., the Airport Marriott sits adjacent to San Francisco Airport’s busy runways and within close proximity to Silicon Valley. Host Hotels had owned the property since 1994 when, in its previous incarnation as Host Marriott Corp., it acquired the 11-story lodging destination from Glendale Federal Bank in a foreclosure proceeding for approximately $61 million.

For Inland American, the purchase of the asset gives the company — which has three other properties in California — a presence in metropolitan San Francisco. It’s a market that investors are quite keen on, and for good reason. “The big picture is San Francisco was the number one market in the United States in rooms revenue growth, and by a longshot,” Callahan said. “And this year, we’re forecasting it to have the second largest increase in rooms revenue after Miami. According to statistics from Smith Travel Research Inc., San Francisco experienced year-over-year RevPAR growth of 20.6 percent in 2011. The average room rate climbed from $136.50 to $156.20, leaving the city trailing only New York City and Oahu, Hawaii.

“San Francisco has, on balance, a healthy economy and there’s no new supply coming in,” he noted. “It’s a difficult hotel market to enter. You can’t build hotels readily here; it’s very costly and time consuming and there are not a lot of sites available. So it’s desirable because there are protections from new supply. With the healthy economy and no new supply, the hotel market is going through a pretty favorable period of growth and that’s what’s drawing investor activity.”

Despite alluring market characteristics, hotel sales volume in San Francisco is not exactly going through the roof. “Like most markets, things have slowed down a lot from the first half of last year,” Callahan said. “There were a lot of transactions occurring at that point in time and then things slowed down a lot as markets became more cautious because of issues of uncertainty with Europe.”

Price tags on San Francisco hotels, like the $157,700 per key for Inland’s new purchase, reflect the current investment climate. “The transactions we’ve reviewed, even the Airport Marriott transaction, are all fair pricing,” Callahan said. “They’re not bargains or steals, but they’re not hugely overpriced.”