By Jon Peterson
Irving, Texas, -based FelCor Lodging Trust Inc. has put the 266-room Embassy Suites Milpitas-Silicon Valley on the market for sale as part of a larger repositioning of the company begun before the financial crisis.
The real estate investment trust has owned the hotel since 1996.[contextly_sidebar id=”9886fe47480bd50bb7a45dd4c7f719b5″]Going forward, FelCor wants a portfolio of more urban properties. In all it has sold or has plans to sell nearly 90 properties with the hope of raising $1 billion, which it plans to use to repay debt. “We would like to be the owners of more high quality urban hotels. This would include assets in a market like Union Square in San Francisco,” said Stephen Schafer, vice president, investor relations.
Holden Lim, managing director in Holliday Fenoglio Fowler’s San Francisco office, is selling the Milpitas hotel on FelCor’s behalf. “I think that the owner looked at this property and was aware that it needed some renovation and would prefer that the new owner would take this on,” Lim said. The cost of the renovation would be something in the neighborhood of $25,000 a room, or more than $6.6 million, he estimated.
Lim anticipates three investor groups to have an interest in the property: another REIT, a private-equity real estate firm or offshore capital.
During the week the property, at 901 E. Calaveras Blvd., targets business travelers. On the weekend it draws leisure guests and people in town for weddings.
Lim expects a purchase price somewhere above $45 million and a capitalization rate, or initial yield, in the range of 6 percent.
The property was built in 1987 and has average annual occupancy of 73 percent, which is consistent with the larger Milpitas market, Lim said. The average room rate in the market is more than $140 a night. “I think there is a good chance that room rates for the Milpitas properties might increase by 10 percent during 2013,” Lim said.
FelCor operates 66 full-service hotels nationwide that are part of national and international chains including Hilton, Doubletree, Embassy Suites and Marriott.