Hotel Online  Special Report


 Summary of San Francisco Hotel Market;
Cap Rates, New Hotel Construction,


By Anwar Elgonemy, Vice President, Jones Lang LaSalle Hotel, San Francisco

San Francisco Commands Top Interest Among U.S. Cities

July 2005

  • An almost frenzied competition for assets has shifted cap rates down to their lowest level on record.
  • San Francisco has highest investor demand - there is extremely limited product on the market and the market has the highest imbalance of demand for hotels vs. hotels for sale.
  • In Jones Lang LaSalle Hotels’ most recent Hotel Investment Sentiment Survey, investors indicated that they targeted an average 8.9% cap rate for 18 top U.S. hotel markets, with New York, Hawaii and San Francisco at the low end. San Francisco is at 8.2%.
  • Given the steep reduction in NOI that most hotels have experienced, it is doubtful that any hotel in San Francisco trades at the above "targeted" cap rate - in fact, actual cap rates are more likely to be half that amount.

Overview of San Francisco Properties Valued
at Over $10 Million Sold since 2002

No. of Rooms
Price per Room
Sir Francis Drake
Oxford Lodging
The Clift Hotel
DivcoWest Properties
Pickwick Hotel
LA Koreana
Pan Pacific Hotel
Oxford Lodging
Vintage Court Hotel
Executive Hotels & Resorts
Courtyard by Marriott

New Construction Projects, Plus Two More Approved

  • 189-room Hotel Vitale opened in March and 276-room St. Regis set to open in November.
  • $195M, 550-room Inter-Continental targeted to open in summer 2007.
  • Two other projects have approval: 86-room Orchard Garden Hotel at 466 Bush Street and a 120-room extended-stay hotel at 301 Mission Street.
  • Re-development of Ferry Building/Embarcadero is energizing the Financial District.

San Francisco Hotel Projects since 2002

Total Development Cost
Total Cost per Room/ Opening Year 
Hotel Rooms
$195,000,000 **
$354,000/in 2007
St. Regis Museum Tower/SOMA
$138,000,000 1
$500,000/in 2005
Hotel Vitale/Embarcadero
$53,800,000 **
$270,400/in 2005
The Argonaut/Wharf (reconfiguration)
$41,194,000 **
$163,000/in 2003
Omni/Financial District (reconfiguration)
$100,000,000 **
$277,800/in 2002
Guest Quarters/Financial District
$151,900/in 2002
1 Estimate. ** Excluding land cost

Market Assessment – S.F. Occupancy
Projected at 75% for 2005

  • On the mend: San Francisco’s hotel market is in recovery after bottoming-out in 2002-03.
  • The overall hotel occupancy rate in San Francisco is projected to be 75% in 2005, about the same as 1995, before the dot-com run-up.
  • Overall city occupancy increased to 73.2% in 2004; ADR up by 1.7% to $147.
  • Nob Hill/Union Square/Moscone sub-market experiencing strongest increase in occupancy at +4.0% over 2004.
  • The increasing occupancy in San Francisco will have a pronounced impact on all western U.S. markets as discounting in San Francisco has been felt up and down the coast, and as far east as Denver.
  • .


    Residential Conversions are Hot
    • San Francisco is newest target for residential conversions.  In 2004, Lennar Corp. began marketing the 144-room Hotel Cosmo to groups interested in converting it to a residential or timeshare property. The Cosmo ultimately sold to a company that currently uses it as leased housing for international students and corporate travelers.  Timeshare operator Cendant acquired the 107-room Hotel Juliana, turning it into timeshare.
    • East Bay developer Jim Hunter has acquired a 16-story building at 690 Market in San Francisco with plans to convert it into a mix of timeshare and condominiums totaling 106 doors. Among the possible operators is Ritz-Carlton.
    • In September 2004, a development group, the Rosetta/SRK Partnership, filed an application with the city seeking approval to convert the old Federal Reserve Building from offices to a hotel/timeshare. The property was recently bought by a wealthy Nevada family for $46.8 million, but with undecided plans for the building.
    • Former Giants owner Bob Lurie and his partners have taken possession of the 250-room Canterbury Hotel, potentially converting it to timeshare or condominiums.
    • Approximately 35,000 s.f. of excess space are being considered for conversion into timeshare at The Anchorage near Fisherman’s Wharf.

    Anwar Elgonemy
    Vice President
    Jones Lang LaSalle
    One Front Street, 3rd Floor
    San Francisco, CA 94111
    tel +1 415 456 1709  fax +1 415 421 7736

    Also See: The Momentum of Hotel Transactions in the Current Low Cap Rate Cycle / Anwar R. Elgonemy / December 2004
    Profile of Hotel Ownership in the San Francisco Bay Area / Anwar Elgonemy / January 2004

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