LaSalle Buys Third San Francisco Hotel—This Month

By Jon Peterson

Bethesda, Md., -based LaSalle Hotel Properties has bought its third San Francisco hotel in less than 30 days with the purchase of the 236-room Serrano Hotel at 405 Taylor St., two blocks east of Union Square and four blocks north of Market Street.

Serrano Hotel San Francisco The Registry real estateThe real estate investment trust paid $71.5 million, or $302,996 a room. The company bought the property in an all-cash purchase. It would not name the seller or listing agent.

The Serrano is the third San Francisco hotel that LaSalle has acquired in August. It paid $48.7 million for the leasehold interests in the 131-room Harbor Court at 165 Steuart and the 140-room Hotel Triton at 342 Grant Ave. earlier in the month.

Michael Barnello, president of LaSalle Hotel Properties, said the company is attracted to San Francisco because the economy is strong and new supply has been limited. “The San Francisco hotel market has recovered very well since the economic crisis in 2008 and 2009,” he said. “We do expect the performance will continue at a high level. The improved economy in the city is one reason. There also is the fact that the region has very little new supply, which makes existing properties all that more attractive.”

At closing, The Serrano had occupancy in the low 80 percent range. San Francisco-based Kimpton Hotels and Restaurants will continue to operate the hotel.

Tom Callahan, co-president and chief executive officer west for PKF Consulting USA in San Francisco, said LaSalle achieved a 5 percent capitalization rate or yield on the purchase, based on the property’s net operating income in the first half of 2013 and projected income for the second half of the year. “The cap rate falls in line with other hotels in downtown San Francisco, which are for the most part trading at cap rates in the range of 4 percent to 5 percent,” Callahan said.

The Serrano property was built in 1928 then closed in 1998 and completely renovated. It was re-opened under its current name a year later. LaSalle’s Barnello said the recent improvements relieve pressure for additional investment right away: “There was around $40,000 per room spent to improve the property from 2006 to 2012 by the previous owner,” he said.

The full-service hotel’s main clientele are vacationers and business travelers to the city. The publicly traded REIT also owns the 201-room Hotel Monaco at 501 Geary St. Both the Monaco and Serrano are within walking distance of the upscale Union Square area as well as Westfield San Francisco Centre.

LaSalle owns 44 hotels in 10 U.S. states. “Since we had our IPO (initial public offering) in 1998, we have not sold any properties in our portfolio,” Barnello said.

REITS, buoyed by their relatively less expensive capital costs, have been big buyers of San Francisco and West Coast hotels, Callahan said. “Besides San Francisco, they are also like to buy properties in Los Angeles, Seattle and Portland. Other buyer groups are opportunistic players and foreign capital from places like China and Singapore,” he said.

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