Downtown San Jose hotel is part of $3.8 billion nationwide deal

Downtown San Jose hotel is part of $3.8 billion nationwide deal

Deal points to rising values for hotels in Bay Area


SAN JOSE — Three Bay Area hotels are part of a coast-to-coast lodging deal priced at $3.8 billion that gives one hotel in the transaction, the Marriott in downtown San Jose, a value that tops more than $200 million.

Brookfield Real Estate Funds, a major investment firm, has bought Watermark Lodging Trust for $3.8 billion.

The transaction gives Brookfield ownership of 25 hotel properties totaling 8,163 total rooms.

Brookfield estimates that it paid an average of $481,300 a key — or room — for the hotel portfolio, which is roughly one-third resort hotels and two-thirds full-service hotels in an array of urban markets.

At that per-key price, the 510-room San Jose Marriott at 301 S. Market St. downtown could be valued at $245 million.

OpenComps, which tracks the hotel investment market, estimated that the price for the San Jose Marriott could be closer to $237 million, however.

Either scenario would represent a hefty jump from both of the prior purchase prices for the hotel.

In 2013, CBRE paid $83 million for the hotel, which had 506 rooms at that time. In 2016, Watermark Lodging paid $154 million. The 2016 price was 86% higher than the 2013 value. The potential price for the latest deal would be 54% higher than the 2016 amount.

“This transaction shows how Brookfield anticipates a strong recovery for the higher-end hotels in the Bay Area and Silicon Valley, and the return of the corporate traveler,” said Alan Reay, president of Irvine-based Atlas Hospitality Group, which tracks the Bay Area lodging sector.

Despite the prospects of an improving hotel sector, the lodging market may still have to navigate past plenty of whirlpools.

Across the street from the San Jose Marriott, the Westin San Jose, formerly known as the Sainte Claire Hotel, was bought in January at a value that was less than what was paid for the hotel in 2017.

The Westin San Jose at 302 S. Market St. was bought in January at a value of $62.3 million, which was 2.7% less than the purchase value of $64 million in 2017. The purchase values include the price paid for the land, the building, the furniture and intangible values for assets in the hotel.

The 336-room Ritz-Carlton in San Francisco and the 226-room Fairmont Sonoma Mission & Spa resort in wine country were also included in the deal.

The hotel business in resort areas such as wine country and Big Sur have roared back, with hotels in those two high-end regions commanding record prices per room in multiple instances.

“Sonoma is already seeing record numbers post-COVID and will continue to do very well,” Reay said.

The transaction was scheduled to be completed sometime during the October-through-December fourth quarter of this year, the two companies stated.

Brookfield executives believe the hotels they bought should prosper as the economy attempts to recuperate from the effects of the coronavirus pandemic, which devastated the lodging and travel industries.

“Hotels and resorts of this scale and quality are difficult to replicate,” said Lowell Baron, chief investment officer for Brookfield’s Real Estate Group.

That’s primarily because of the location of the 25 hotels, according to Brookfield.

“This portfolio is well-positioned,” Baron said, “given its concentration in high-barrier-to-entry coastal destinations, gateway cities and the Sunbelt.”

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