Larry Ellison Buys Swanky Palo Alto Hotel for Steep Price

Silicon Valley Business Journal
09/14/15

Larry Ellison Buys Swanky Palo Alto Hotel for Steep Price
By Nathan Donato-Weinstein

http://www.bizjournals.com/sanjose/news/2015/09/14/exclusive-larry-ellison-buys-swanky-palo-alto.html

First Lanai. Then Malibu. Now: Palo Alto?

Billionaire Larry Ellison’s investment arm has acquired Palo Alto’s Epiphany Hotel — an 86-room trophy property in the heart of downtown Palo Alto — according to public records and local hospitality sources.

The Oracle Corp. co-founder, through a limited liability company, just dropped $71.6 million — or about $832,500 per room — for the property that opened last year, according to public records I examined today at the Santa Clara County Clerk-Recorder’s Office. That’s a whopping number and could be a record in the region outside of San Francisco.

It’s the latest example of the tech titan’s well-documented penchant for property. In 2012, Ellison paid an estimated $500 million for most of the Hawaiian island of Lanai. He has spent hundreds of millions of dollars buying up multiple properties — including a hotel — in Malibu, the L.A. Times reported in 2013. And of course, there are his luxurious homes in San Francisco, Woodside and Lake Tahoe.

“There’s no question he loves trophy properties in great locations,” said Alan X. Reay of Atlas Hospitality in Irvine, a consultancy that works with buyers and sellers. “It’s hard to beat Palo Alto, Malibu and Lanai.”

That Palo Alto would slide in along with those resort towns might seem surprising, but the city’s tech-heavy real estate market and booming downtown make the city a top choice for investors looking to place capital — celebrity or otherwise. Office buildings sell for more than $1,000 a foot, and teardown homes go for north of $1 million.

“It’s pure and simple location,” said Dharmesh Patel, executive managing director for Colliers International’s hotel practice. “It’s ground zero for core Silicon Valley, being right in Palo Alto.”

And the attraction for a billionaire tech legend? “It’s a safe haven for capital,” Patel said. “You have a lot of billionaire entrepreneurs tied up into their companies. As they diversify and sell out, they are looking to diversify their asset portfolio. They’re going to start looking at real estate.”

Indeed, Ellison isn’t alone in pumping money into real estate. EBay founder Pierre Omidyar controls a Hawaii resort developer, Ohana Real Estate Investors LLC, which was reportedly interested in buying Strategic Hotels & Resorts, the real estate investment trust that is now selling to Blackstone Group.

Closer to home, Anne Wojcicki, the founder of Mountain View-based personal genetics company 23andme, and Sergey Brin, co-founder of Google Inc., are behind Los Altos real estate company Passarelle Investment Co. The firm has scooped up downtown buildings and brought in unique new shops and restaurants there.

Ellison stepped down a year ago from his role as Oracle’s chief executive, replaced by co-CEOs Safra Catz and Mark Hurd, but he remains its executive chairman and chief technology officer. His biography on Oracle’s website says, “He also races sailboats, flies planes and plays tennis and guitar.”

In an interview with CNBC in 2012, Ellison described his attraction to real estate: “When I was a kid, the first thing I ever wanted to be was an architect,” Ellison said. “So I love building houses, remodeling houses, designing houses, converting houses.”

In Palo Alto, Ellison is acquiring a unique asset. The Epiphany made a huge splash in the local hospitality world when it opened in 2014. It’s the former Casa Olga — an aging eight-story 1970s apartment tower that had seen better days when hotel operator Joie de Vivre Hotels took it on as a renovation project.

JDV and architecture firm Steinberg gave it a hip, tech-inspired update with perforated metal wood-toned panels, but retained the original façade’s six-story mosaic portrait of a thousand-year-old coastal redwood that gave the city its name. The cheapest rate for a Monday stay in late September was $749, according to a check of its website. The property also comes with a bar and restaurant called Lure + Till, which the Chronicle’s Paolo Lucchesi called “very cosmopolitan.” Another perk? Travelers can request a mid-century modern refrigerator filled with “full biotic yogurt with blueberry crumble and goji berry” and salads with “Tomatero Farm heirloom tomatoes and 9-grain tabbouleh,” according to an NBC Bay Area story about the amenity. (Price of admission: $95)

On a per-room basis, the price is far above any hotel that has sold in recent years in Silicon Valley, according to a search of trades on Real Capital Analytics. In June, Hilton Worldwide paid about $500,000 per room for the Cypress Hotel in Cupertino, renaming it the Juniper — and that price was far above most suburban hotel trades in recent years. The upscale Hotel Los Gatos has a deal in the works to sell for just over $400,000 per room. In the broader Bay Area, Flynn Properties paid about $743,000 for Napa’s Carneros Inn — a luxury Wine Country resort that comes with 27 acres of land.

“In the Valley, this would be No. 1 in the hit parade,” said Thomas Callahan, senior managing director at PKF Consulting USA, a CBRE company. “Palo Alto is – other than San Francisco – I would argue the best market in the nation. You have great demand generators and wery little new supply.”

A spokeswoman for Ellison declined to comment. The seller — New York private equity firm Angelo Gordon — didn’t return a call. A representative of Commune Hotels & Resorts, which owns Joie de Vivre and operated the property, confirmed that the hotel had sold. The spokeswoman said JDV will remain on as the operator.

The acquisition raises the possibility that Ellison could acquire additional properties nearby. That’s what he did in Malibu, where the Times said he went on a “decade-long shopping spree.” On Lanai, Ellison followed up on his purchase of the island’s land with the acquisition of the Hotel Lanai.

But public records show that the entity that acquired the Palo Alto property, PA Hotel Holdings LLC, is associated with Paul T. Marinelli, the vice president of Lawrence Investments, Ellison’s investment arm. The address associated with the LLC tracks back to Walnut Creek-based Howson & Simon, an exclusive CPA firm that is associated with Ellison, according to previous reports and SEC filings. Philip Simon, of Howson & Simon, is also on the nonprofit Lawrence Ellison Foundation board. He didn’t return a phone call.

The Malibu Times reported in 2007 that Ellison used Lawrence Investments to purchase property there years ago. A deed filed with the county of Santa Clara that I examined on Monday also lists Lawrence Investments as the return address for tax statements.

My sources said the Epiphany transaction was arranged by Eastdil Secured, which didn’t return a phone call on Friday.

About the author