HFF Brokers Sale of 3 San Francisco Hotels

November 18, 2011
By Barbra Murray, Contributing Editor

San Francisco's Galleria Park Hotel

In the San Francisco Bay Area, the weather is mild but the hotel market is hot, as evidenced by Holliday Fenoglio Fowler L.P.’s recent facilitation of the sale of a three-property, four-hotel portfolio to separate buyers. Acting on behalf of Nob Hill Properties Inc., the commercial real estate and capital markets services provider sold The Huntington Hotel and the Galleria Park Hotel, both of which are in San Francisco, and the La Playa Hotel and Cottages-by-the-Sea in Carmel-by-the-Sea.

“We’ve been on fire here,” Holden Lim, managing director with HFF, told Commerical Property Executive about the San Francisco Bay area’s hotel market.

Singapore-based Grace International Pte Ltd. snapped up the upscale The Huntington, a 140-room property that first opened as an apartment building the early 1920s. The 12-story structure is within close proximity of the Financial District and Union Square, and is home to the celebrated Nob Hill Spa.

With the purchase of the leased-fee interest in the land beneath Galleria Park, La Jolla, Calif.’s Interwest Capital Corp. becomes the property’s new owner. A 177-room boutique hotel in the middle of the Financial District, Galleria Park made its debut in 1911 and underwent its most recent makeover with a $7.1 million upgrade in 2007.

Phoenix’s Grossman Company Properties’ subsidiary, Classic Hotels and Resorts, now has a 76-room presence in the tony seaside town of Carmel-by-the Sea. The company bought La Playa, which consists of 75 guestrooms and a single stand-alone cottage, just blocks from the beach and within two miles of more than a few renowned golf courses. Cottages-by-the-Sea, the adjacent property, has come under the ownership of Carmel Cottages L.L.C. The five-cottage destination is now operated as a separate entity.

All four hotels sold unencumbered and the buyers made the acquisitions with cash and new debt.

HFF had no trouble finding takers for the assets. “There was a lot of interest among investors, especially for The Huntington Hotel,” Lim noted. “We had domestic and international investors, especially from Asia. It’s just a great property in a prime location, made all the more attractive by the fact that it was unencumbered by a brand or management, which gave any potential buyer a clean slate.”

The hotels were originally marketed as a single portfolio, but offering them individually attracted more attention — and more money. “There’s basically a different type of buyer for each property so when you sell them together you’re not getting the best price, especially in this case,” Lim explained. The buyer who would want a luxury hotel in the heart of bustling San Francisco, Lim added, is less likely to covet a small cottage property in a small resort area like Carmel-by-the-Sea.

It has been a very good year for hotel investment in the San Francisco Bay area. “We’ve probably had about 18 hotel transactions here in the last 18 months. Typically, in normal years we would get maybe two or three transactions. So, San Francisco has been extremely hot from an investor standpoint.”

One factor behind the rising interest in San Francisco hotels is the city’s increasingly strong economy. “It’s partly because of the rebound in technology,” Lim said. We’re getting a lot of tourism coming in. There’s been a strong convention year. Vacancies in office buildings have been coming down. There’s just a lot more activity. And in San Francisco, it’s almost impossible to build new supply.”