SAN FRANCISCO-Griffin Capital Corp., sponsor of the Hotel Palomar tenant-in-common ownership platform, has sold the hotel for $58 million to Pebblebrook Hotel Trust, a publicly traded REIT. The property is a 196-room luxury boutique hotel located on 4th Street in the South of Market submarket. The hotel and its renowned Fifth Floor Restaurant and Lounge are managed by previous owner Kimpton Hotels and Restaurants.
Griffin was represented in the sale by a Jones Lang LaSalle Hotels team led by John Strauss. The firm had acquired the luxury boutique hotel located in the South of Market submarket here from Kimpton in August 2007 for $36.3 million, which included a $27.2-million first mortgage loan and $18.2 million the firm had raised from 31 tenant-in-common investors. At the time of purchase, a number of reserve accounts were funded to provide operating cash balances and renovation capital to be deployed at the Palomar for planned room and common-area upgrades.
By the end of 2008, the operating performance of the property had suffered as a result of the recession, and in 2009, Griffin restricted investor distributions to preserve capital and persuaded the tenant-in-common investors to reallocate a portion of the capital reserves toward the payment of debt service to avoid a default as it worked with the lender toward restructuring the loan.
Simultaneously, Griffin’s asset-management team, together with its special asset manager Rick Swig of RSBA Associates and the Kimpton management team, worked throughout the recession to trim operating expenses and carefully manage capital expenditures while exacting concessions from each party.
“By the end of 2009, the Palomar’s market value had deteriorated substantially,” said Michael Escalante, Griffin Capital’s chief investment officer, in a prepared statement. “A concerted team effort through the lean times and leading up to the sale allowed Griffin Capital to return to its investors over 167% of their originally invested equity, which translates to an average annual return exceeding 13%.”
According to JLL, year-to-date hotel transaction volume in San Francisco is slightly more than $518 million, and lodging performance is doing well in the market with year-to-date RevPAR for upper-upscale and luxury hotels at $185.94—up 10.8% over last year. Occupancy for upper-scale hotels in the region has stabilized at 83% year-to-date, and the year-to-date average daily rate for upper-upscale and luxury hotels in the market is $223.98, up 11.5% over last year.
As GlobeSt.com previously reported, in August Kimpton Hotels & Restaurants officially re-launched the Hotel La Jolla after a $4-million renovation. This marked the third Kimpton hotel in San Diego, following Hotel Solamar and Hotel Palomar San Diego.
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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.
