Hotel Offers Yield and Risk-Adjusted Returns

The Marriott has a business and fitness center, with an outdoor swimming pool.

SAN JOSE—With more than 109 million square feet of office space in Silicon Valley, 29 million square feet in the greater San Jose area and 14 million square feet in downtown San Jose, there is significant corporate demand within the region. With an additional 17 million square feet of office development proposed or currently under construction in Silicon Valley, as well as the addition of nearly 10,000 residential units in downtown San Jose alone, continued growth is anticipated. With a direct connection to the newly renovated and expanded San Jose McEnery Convention Center , the San Jose Marriott also has been renovated within the last two years. Carey Watermark Investors 2 Incorporated , a lodging REIT, has acquired the 510-room hotel with an acquisition price of $154 million ($302,000 per key), financed with $88 million of senior debt. The San Jose lodging market has shown exceptional performance, with a RevPAR compound average growth rate (CAGR) of 15.6% from 2011 through 2015. Michael Medzigian , chief executive officer of Carey Watermark Investors, said: “Given the limited supply of institutional quality assets in the Silicon Valley market, the San Jose Marriott represented a unique investment opportunity. The property is the newest hotel in downtown San Jose and the acquisition adds a top performing, well-located asset in a high growth market with high barriers to entry to CWI 2′s portfolio.  With a strong current yield and expected solid risk-adjusted returns, the property’s central location and superior access within Silicon Valley should allow it to continue to outperform within its competitive set.” In addition to corporate demand generators, the hotel is in close proximity to San Jose State University and attractions such as the Tech Museum of Innovation, the San Jose Museum of Modern Art and SAP Center . The Norman Y. Mineta San Jose International Airport is located just three miles away. The recent development of Levi’s Stadium and the proposed BART expansion are expected to further increase the desirability of the Marriott’s location. Medzigian tells Globest.com: “The property benefits from an unmatched downtown San Jose location, with a direct connection to the newly renovated and expanded San Jose McEnery Convention Center.” The 27-story hotel was built in 2004 and benefits from $10 million of capital improvements completed since 2014. These improvements include a soft goods renovation of the guestrooms and corridors, the addition of four guestroom keys and a complete renovation of the lobby, as well as updates to the public space and concierge lounge. The total $159.8 million investment includes the $154 million purchase price, as well as $5.8 million of planned capital expenditures and other acquisition-related costs. The hotel has 23,000 square feet of meeting and event space, three food and beverage outlets, a concierge lounge, business and fitness center, and an outdoor swimming pool. The hotel will continue to be managed by Marriott International and benefit from Marriott’s loyalty program, as well as brand recognition and demand from global travelers.