San Francisco Business Times
12/02/15

CBRE Global Snaps Up High-Profile Peninsula Hotel
By Nathan Donato-Weinstein

http://www.bizjournals.com/sanfrancisco/morning_call/2015/12/redwood-city-sofitel-hotel-acquisition-cbre-global.html

The Bay Area’s booming hospitality sector means more development, higher room rates — and property sales.

Case in point: Redwood City’s Sofitel San Francisco Bay has just sold to CBRE Global Investors, which paid $154.5 million for the 421-room luxury property this week, public records show. The price amounts to about $367,000 per room.

“We just continue to be fairly bullish on the Bay Area in general, and that whole corridor from San Francisco to San Jose,” said John Sauter, a principal with CBRE Global. “This hotel has a unique position relative to all the corporate demand there, but there’s also not a lot of other nicer, leisure options in the Valley. We would put this in that category of a full-service, high-end hotel.”

It’s the latest in a parade of large hospitality transactions in the Bay Area, and represents a nice profit for Prudential Real Estate Investors and joint-venture partner Lodging Capital. They bought the property in 2012 for $92.5 million, then pumped about $9 million into renovations.

The hotel at 223 Twin Dolphin Drive was built in 1987 and includes 20,000 square feet of meeting space and parking garage.

Despite the higher price of the trade this time around, Alan X. Reay of Atlas Hospitality, who advises hotel buyers and sellers, said the price didn’t strike him as out of whack. “Based on the other comps we’re seeing today, it actually is not” sky-high he said, referencing the $760,000 price-per-room sale of the Fairmont San Francisco this month. But he added: “It is a very nice profit, and reflects how quickly this hotel market has rebounded.”

“It would cost at least that to replace this asset — if you can get the land,” he said. “All in all, it’s a good price.”

The Sofitel is one of the more prominent meeting facilities on the Peninsula, in a neighborhood thick with tech companies — notably, Oracle — and law firms. But Sauter said there’s room to improve the property further.

The previous owners “had done some renovations, but we felt they haven’t really finished it,” Sauter said. “There’s close to 100 rooms we intend to finish the renovation on. And there’s some reprogramming of the food and beverage operation that can generate some incremental demand and cash flow for us.”

Sauter said it’s also possible that CBRE might add more rooms and some conference space, but such plans are still in the early stages.

He declined to discuss the Sofitel’s current economics or projections, but said: “We believe with effectuating our management and renovation plan, we can continue to push the rate, because we’ll have a better experience there. The demand drivers, primarily the tech companies, are doing well and it appears they’ll continue.”

The deal comes less than three years after a different CBRE fund acquired the Marriott San Jose, a 506-room high-rise in downtown San Jose, for $85.3 million, or $168,567 per unit.

The region’s hotel sector continues to fire on all cylinders especially during the week, thanks to soaring business travel. A midweek stay in the cheapest room at the Sofitel San Francisco Bay for mid-December was going for $391 per night, according to a check of its website.

The red-hot market is driving property sales. In September, Larry Ellison’s investment arm purchased Palo Alto’s Epiphany Hotel for $832,500 per room. It’s also pushing development of new projects, including full-service and select-service properties. The full-service pipeline now includes a Millennium Hotels & Resorts “M Social” hotel in Sunnyvale, and Ensemble Hotel Partners’ Marriott Autograph Collection hotel in Menlo Park. (Read more about the Valley’s hotel boom here.)

CBRE acquired the Redwood City Sofitel on behalf of its CBRE Strategic Partners U.S. Value 7. The fund closed in July with equity commitments of more than $1.3 billion from 26 institutional investors in the U.S., Europe, Middle East and Asia.

CBRE says the fund will have “total purchasing power” of more than $3.3 billion, including leverage, and focuses on “value-add” opportunities, or real estate where there is room to achieve higher returns.

Eastdil Secured marketed the Sofitel San Francisco Bay, and it will remain a Sofitel under the new ownership.