By Jon Peterson
Annapolis, Md.-based Chesapeake Lodging Trust is planning on being the future owner of the 337-room JW Marriott San Francisco Union Square hotel. The real estate investment trust has placed under contact this property to buy for $147.2 million or $437,000 per key.[contextly_sidebar id=”12863563NU7k5Js7p6YU5palpzovcJCW”]“We think that the market fundamentals are very strong for the hotel market in San Francisco. There is strong demand for guests filling up rooms, and there is limited new supply being added in the marketplace. This makes for a very healthy market,” says Douglas Vicari, chief financial officer for Chesapeake Lodging.
The public REIT is expecting to have a final close on the transaction at the end of the month. The property has a ground lease which runs out in 2083. The land underneath the property is owned by the San Francisco-based The Olympic Club.
Vicari declined to comment on the cap rate on this deal. This transaction is expected to produce a 7.2 percent cap rate, according to sources familiar with the anticipated sale. This return is based on the forecasted net operating income for 2015.
Chesapeake did have a cap rate discussion during its conference call for its second quarter results last month. Jim Francis, president and chief executive officer, stated in the conference call that cap rates in major markets are generally in the 6-percent range. An active market like San Francisco could be a little lower.
The projected cap rate the JW Marriott is higher due to the fact that it involves a ground lease and not a 100 percent fee simple sale, according to sources aware of the deal.
The JW Marriott San Francisco was first constructed in the mid-1980s. The asset has a current occupancy in the low 80-percent range. The hotel attracts a mixture of guest types, given its location in proximity to the popular Union Square district in San Francisco. “The people that stay at the hotel would include both corporate travelers and people that are on a vacation,” said Vicari.
Chesapeake Lodging is no stranger to the San Francisco hotel market. Vicari added that Chesapeake owns three other properties in the market, all of which have been good performers for the company.
The most recent property it bought in the market was the 313-room Hyatt Fisherman’s Wharf asset it acquired in May of 2013. This asset was bought for $103.5 million or $331,000 per room. The other two properties are the 171-room Hotel Adagio San Francisco Autograph Collection, which it purchased in July of 2011 and the 360-room Le Meridien San Francisco that was bought in December of 2010.
Chesapeake Lodging owns 20 hotel assets nationwide totaling 5,932 rooms. The properties outside of San Francisco are located in markets including Boston, Los Angeles, Seattle, Chicago, San Diego, Denver, New York, Minneapolis and Washington, D.C.