Union Square Hotel and Shop Space Come to Market

By Jon Peterson

A Union Square district boutique hotel at 33 Powell St. with a large ground-floor retail space is being offered for sale by an Asian investor who has owned it for a number of years.

007938AThe property is the home of a splashy, 8,554 square-foot Sephora store on the first floor. The second through fifth floors consist of the 142-room hotel.

Tom Callahan, co-president and chief executive for PKF Consulting USA, said he expected the offering to draw multiple investors including real estate investment trusts drawn by the steady income from the cosmetics store. “There should be a solid mix of investors trying to buy the property,” he said. PKF is advising Colliers International on the sale.

“Union Square attracts over 16 million annual visitors and billions of dollars spent in the city,” said Erik Hanson, a vice president with Colliers who said the listing team would begin to accept offers next month.

The lease with Sephora extends through 2026; the retailer has assumed all of the costs of the taxes, operations, maintenance and premises. Rents on retail space in Union Square have increased by approximately 25 percent in the past 12 months, according to Colliers data. This is mainly being driven by having more demand than there is space to accommodate tenants.

Hanson would not comment on what sales price the property might attract nor what capitalization rate, or initial yield, an investor might accept. There is no debt on the property now.

The hotel is not branded property and is currently considered a one-and-a-half to two-star hotel, according to PKF. “Its main clientele are tourists,” Hanson said. “Given its location, it also will attract some business travelers and convention attendees.” The property was initially developed in 1908. The average occupancy is in the mid 70 percent range.

The San Francisco hotel market is one of the strongest in the country. “RevPar [revenue per available room] is up 10 percent this year for the overall hotel market in San Francisco.The overall occupancy for the market is 80 percent. Every indication is that the market will continue to operate at a high level,” said Callahan.

Colliers’ executive vice presidents Tony Crossley and Tim Mass and Senior Vice President Frank Wheeler also are managing the listing.

West Coast Commercial Real Estate News