Stanford Hotels Affiliate to Develop San Francisco’s First New Upscale Hotel Since ‘08

By Gail Kalinoski, Contributing Editor

Mission Bay rendering

SOMA Hotel L.L.C., a privately held hotel development company and an affiliate of the Stanford Hotels Group, has acquired a prime development site in San Francisco’s South of Market neighborhood and plans to build the first full-service hotel in the city since 2008.

The price SOMA Hotel paid for the fully entitled, 23,000-square-foot site on Channel Street between 3^rd and 4^th streets was not disclosed. The group bought the site from Block 1 Associates, L.LC., a joint venture between Blackrock Real Estate and Strada Investment Group. Block 1 owns the adjacent land and plans to build 350 units of residential condominiums and apartments.

Located a block from AT&T Park, home of the San Francisco Giants, the site is part of the Mission Bay Redevelopment Plan and was originally zoned for a 500-room hotel. At the request of Strada, the San Francisco Board of Supervisors amended the redevelopment plan in July to allow 350 residential units, a 250-room hotel and about 25,000 square feet of retail, according to the San Francisco Business Times. When the joint venture acquired the three-acre site in May 2012, the newspaper reported that the mixed-use project would cost at least $220 million to develop.

Construction on the 15-story hotel is expected to begin in the fourth quarter of this year and be completed by fourth quarter 2016. It will be a four-star, premium branded lifestyle hotel with meeting space, a restaurant and bar. The developer has not yet announced the brand name for the hotel. Affiliates of SOMA Hotel will oversee construction and operate the hotel, according to a company news release. The Stanford Hotels Group owns and operates 13 hotels and now has five under construction, including Hyatt Place, a 24-story, 130-room luxury hotel in Times Square in Manhattan.

“Downtown San Francisco is one of the most difficult cities for new construction, due to scarcity of land and high barriers to new construction,” Will Gibbs, senior vice president, SOMA Hotel, said in the release. “This will be the first four-star, new-build hotel in the city’s urban core since 2008. The South of Market district is the city’s most dynamic location and there is a minimal presence of hotels there.”

In addition to the ball park, the hotel will be near the University of California San Francisco Mission Bay campus and its 289-bed hospital, clinics and research facilities. The SOMA neighborhood has been active lately with the arrival of many high-tech companies. It is also near current and under construction rail systems that can provide guests access to the Moscone Convention Center and tourist attractions.

In its annual “Emerging Trends in Real Estate 2014” report, the Urban Land Institute cited San Francisco as the top-ranked market for commercial real estate activity for the second year in a row. The ULI noted that they city’s real estate sector is being “driven by a thriving economy that is projected to add jobs at a rate of 2 percent next year.” The ULI’s survey of CRE executives found that “respondents are particularly confident about the prospects for San Francisco’s hotel sector.”

C. Patrick Scholes, managing director of Gaming, Lodging and Leisure Equity Research at SunTrust Robinson Humphrey Inc., called San Francisco a market that should outperform in his “Lodging: 14 Points for ’14” report.

“We see RevPAR tracking north of +10 percent for the year. San Francisco should be driven by the technology sector and low supply growth,” Scholes wrote.