SAN FRANCISCO-Pebblebrook Hotel Trust has purchased the Hotel Milano for $30 million. The 108-room, full-service hotel is located in the South of Market and Convention Center submarket of downtown and will be managed by Viceroy Hotel Group.
Pebblebrook plans to invest between $8 million and $10 million over the next year in a complete renovation and repositioning of the hotel, including all guestrooms, public areas and the restaurant. Hotel Milano’s comprehensive guestroom and public-area improvements are expected to commence in the second half of 2012, and the company plans to rename the property upon completion of the renovation.
Pebblebrook purchased the hotel with all cash, and the seller was a private entity known as 55 Fifth St. Corp., Raymond Martz, CFO of Pebblebrook, tells GlobeSt.com. Martz is uncertain of the exact reasons for selling, but continues that Pebblebrook is “buying the asset for what it can be rather than what it is today. It is currently positioned as a 2.5-star-quality hotel, and we’re going to reposition it as a four-star-level hotel. It has great bones, a great box and a great location.”
Martz adds that San Francisco is doing very well as a market this year, and the SoMa submarket is growing and expanding rapidly. The San Francisco hotel market has been subject to strong recoveries following previous economic downturns, experiencing a double-digit, compounded annual room revenue per available room growth rate during the last recovery cycle, as well as 19.7% RevPAR growth in 2011, the highest of any of the US’s top 25 markets. In addition, the market has extremely high barriers to entry, as exhibited by a compounded annual growth in supply of .5% over the past 20 years.
Hotel Milano’s edgy renovation will be geared to attract the 25- to 40-year-old tech-savvy user that is currently flocking to this market, Martz continues. “We’re very excited about it. We’re very experienced in owning and repositioning hotels in San Francisco. We acquired the Sir Francis Drake Hotel in 2010, which we successfully repositioned from a three-star to a four-diamond, four-star hotel. We know the San Francisco market and realize its great long-term fundamentals.”
Martz also tells GlobeSt.com that Pebblebrook will decide during the repositioning if it will keep the hotel operating during renovation. "We think that 2013 will be a repositioning year, and 2014 will be getting closer to how the hotel is going to be performing.”
Pebblebrook expects to incur approximately $.7 million of costs related to the acquisition of the hotel that will be expensed as incurred. The acquisition of the Milano brings the total number of properties in the company’s portfolio to 21, comprising $1.7 billion of invested capital since Pebblebrook completed its initial public offering in December 2009.
Jon Bortz, chairman and CEO of Pebblebrook, says the renovation “will touch each and every aspect of the guest experience at the hotel. We are confident repositioning the hotel as an upper upscale, four-diamond-quality hotel will successfully satisfy the needs of this fast-growing neighborhood.”
Bortz adds that Pebblebrook is “thrilled to expand our extremely successful relationship with Viceroy Hotel Group. Their expertise in operating high-quality boutique properties, such as the soon-to-be-repositioned Hotel Milano, gives us immense confidence in the future for the property.”
Viceroy Hotel Group also manages two of Pebblebrook’s other hotels: the 310-room Sheraton Delfina Santa Monica and the 148-room Viceroy Miami. “We are excited to continue growing our relationship with Pebblebrook Hotel Trust at the Hotel Milano,” says Nicholas Clayton of Viceroy. “The hotel exhibits strong growth potential, and we are eager to bring our proven industry experience to the San Francisco market for the first time.”
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
