Pebblebrook Sells Another Century-Old San Francisco Hotel

Pebblebrook Hotel Trust, the hotel and resort REIT, has cashed in another century-old San Francisco hotel to fund the recent expansion of its US resorts portfolio.

In its latest deal, Pebblebrook—the largest investor in San Francisco hotels—finalized the sale of the iconic, 99-year-old Hotel Spero. The venerable 236-room lodging on Taylor Street had a net operating loss in the past year of $1.6M, according to a release posted on Pebblebrook’s website.

The deal marks the fourth century-old San Francisco hotel the REIT has sold since April 2021, and the second in two months.

Pebblebrook said it sold Hotel Spero “to an undisclosed third party” for $71M. Proceeds from the sales will be used to reduce Pebblebrook’s outstanding debt associated with recent hotel acquisitions, the company’s release said.

Hotel Spero, which opened as the Hotel Californian in 1923, features Spanish Colonial-style architecture and a lobby with hand-painted wood ceiling beams and a diner-style restaurant. The boutique hotel was renovated in 2018.

At the end of June, Pebblebrook sold another century-old hotel in San Francisco, The Marker Hotel, for $77M to Stockdale Capital Partners. The 208-room boutique hotel is located at 501 Geary Street near Union Square in SF.

Last year, the Bethesda, MD-based REIT initiated a strategy of funding new acquisitions by cashing in some its historic properties. In September, the REIT sold the 189-room, century-old Villa Florence in Union Square for $87.5M, equaling $463 per key. In April 2021, Pebblebrook sold the 416-room, century-old Kimpton Sir Francis Drake Hotel for $158M.

This year, Pebblebrook has expanded its luxury resort portfolio to 13 properties with two acquisitions totally more than $334M.

In June, the REIT acquired for $174M the 257-room Gurney’s Newport Resort & Marina in Newport, Rhode Island. In May, Pebblebrook acquired for $156M the 119-room Inn on Fifth in the Historic Downtown district of Naples, FL.

“Our recent acquisitions have been funded by our ongoing property disposition program,” said Jon Bortz, Pebblebrook CEO, in a Q2 2022 earnings statement, adding that the company has contracts to sell three additional properties for a total of $184M in deals that are expected to be completed in Q3 2022.

In the company’s earnings statement, Bortz said the REIT’s Q2 operating results “significantly surpassed” the company’s outlook due to a robust recovery in weekday group and transient business travel in urban markets.

“We experienced strong demand and ADR improvements in San Francisco, Chicago, Boston, Seattle, Portland and Washington DC. This momentum is continuing into the third quarter,” Bortz said. “At our resorts, leisure demand remained robust, with pricing achieving record levels, far above 2019 and exceeding healthy 2021 rates.”

Pebblebrook’s strategy involves “opportunistically” acquiring and investing in “upper upscale” full service lifestyle hotel and resort properties located in or near urban market in major US gateway cities. In addition to its 13 resorts, the REIT owns 52 hotels.