Milpitas Selling Land to Hotel Developer; Expert Calls It a Great Site but Pricey Deal
Milpitas Selling Land to Hotel Developer; Expert Calls It a Great Site but Pricey Deal
Silicon Valley Business Journal
03/10/16
Milpitas Selling Land to Hotel Developer; Expert Calls It a Great Site but Pricey Deal
A Utah-based hospitality group is poised to pick up a 3.3-acre site in Milpitas that’s in the thick of corporate campuses and highly-trafficked roads, and it has Gov. Jerry Brown to thank for it.
Lodging Dynamics is slated to buy the land, currently a vacant parcel, from Milpitas’s Successor Agency to the Redevelopment Agency, which was set up to dispose of the assets of the city’s former Redevelopment Agency. Cities all over the state have been selling off their agencies’ holdings following Brown’s 2011 order that wound down redevelopment.
The Milpitas City Council next Tuesday is expected to sign off on the $7 million sale. The site is located at the intersection of East Tasman Drive and Barber Lane, just off Interstate 880 at the Tasman Drive/Great Mall exit. It’s adjacent to a VTA parking lot for the Milpitas Station.
Assistant City Manager Emma Karlen told me that the land has long been envisioned for a hotel, and represents the most significant parcel from a development perspective among the five sites that the Successor Agency is selling off. Cities don’t get all the money because they have to share it with other government agencies. A short city staff report says that the city of Milpitas will get about 16 percent of the proceeds. Lodging Dynamics was the high bidder for the site.
Bill Ekern, the city’s interim planning director, told me that Lodging Dynamics hasn’t yet turned in any plans for the site. The company manages, acquires and develops “premium hotel brands” throughout the Western U.S., with its website listing Marriott, Hyatt and Hilton sub-brands. The company didn’t respond to an email requesting comment.
Justin Myers, vice president at Atlas Hospitality, told me that there’s a lot to like about the site. “From a visibility standpoint, it looks fantastic, and it’s near all these corporate campuses,” he said, noting that the land could support a project of about 150 rooms.
At $50 per square foot of land, however, it’s a pricey deal, he said. “It’s definitely on the high end, but I’ll bet that these properties (in the neighborhood) are cranking and doing high RevPAR,” or revenue per available room (a key metric for hotels), he said. He estimates the project could cost $170,000 per door to build, including the land. “If you look at what’s selling at $300,000 or $400,000 a room, there’s still upside in the building,” he said.
Still, there’s been a lot of so-called “select-service” hotels built in the submarket, and supply could eventually cause sky-high weekday rates to come down in Silicon Valley.
“There’s quite a bit of new construction coming in,” Myers said. “To me, this is definitely a premium site.”
