Blackstone Victory Could Force Calif. Hotel Revaluations

In a court decision that may set a precedent forcing cities across California to refund overcharges of property taxes to hotels, the state’s Supreme Court has let stand an appeal’s court’s ruling ordering San Francisco to provide a tax refund to a Blackstone unit for the Westin St. Francis hotel.

The top court denied a review of an August appellate court ruling involving the city’s classification of “intangible assets,” including in-room movie rentals and laundry service, as taxable property, the San Francisco Chronicle reported.

The decision to let the appeals court’s decision stand requires San Francisco to reassess its valuation of the Westin and refund the overcharges, which an attorney representing the hotel indicated could amount to $1M per year since 2015, when Blackstone acquired the hotel, the report said.

BRE Diamond Hotel, a Blackstone unit based in Chicago, acquired the 1,195-room Westin St. Francis in December 2015 for $671M, a change of ownership that triggered a property tax reassessment. The Westin, the third-largest hotel in the city, is located at 335 Powell Street in Union Square.

In its 2015 reassessment of the Westin, the city set the hotel’s valuation at $785M, while BRE contended the taxable value of the property was $645M, the report said.

According to the court filings, the city’s valuation included nearly $57M in intangibles, including revenue generated by the hotel’s management agreement as well as sundries including on-demand movies and laundry service.

In August, the 1st District Court of Appeals ruled that payments from movie and laundry fees were not an “integral” part of the hotel’s value and could not be taxed as property. The appeals court also found that the city had overvalued the impact of the management agreement on the new owners.

Legal experts said the Supreme Court’s denial of a review sets a precedent that could force millions of dollars in tax refunds to owners of similar hotels because numerous cities in the Golden State have used the same formula as San Francisco to assess the value of new newly sold hotels.

The top court’s decision is binding on trial courts across California, Colin Fraser, an attorney representing the Westin St. Francis told the Chronicle.

“The most important impact of this decision is not just on this property, but that it will affect hotel evaluations for property taxes throughout the state of California,” Fraser told the newspaper.

“We are disappointed with the decision and are evaluating next steps,” a spokesperson for City Attorney David Chiu told the Chronicle.