Sale of JW Marriott San Francisco Union Square
The challenge was to market for sale the landmark 21-story JW Marriott San Francisco Union Square hotel subject to both a complicated ground lease and a long-term management agreement with Marriott International. The AAA four-diamond hotel designed by John Portman had recently undergone a substantial renovation; however, at the time of initial marketing, the lodging market recovery was in its early stages and trailing net cash flow from operations was very low relative to long-term expectations for stabilized performance.
Cushman & Wakefield Sonnenblick Goldman focused on the high barriers to entry, prospects for a sustained market recovery, and the irreplaceable nature of this real estate to drive a highly competitive sales process that resulted in multiple compelling proposals from investors around the world. Ultimately, Thayer Lodging Group, a well-capitalized investor with a strategic interest in the San Francisco lodging market, and Marriott family assets in particular, was selected as the purchaser. Thayer is a long-term investor with a successful track record that spans multiple investment cycles. Its strategy is to hold this asset in its portfolio of 15 hotels totaling 3,391 guest rooms while continuing to add value through sustained investment in the property and surrounding community.
The transaction closed at the end of the first quarter in 2011 and the $96-million sale price equated to a 3.7% capitalization rate on trailing net cash flow. The low capitalization rate of the transaction reflected the robust levels of demand for this trophy asset and an investment view that cash flows were poised to increase significantly in the near term. In fact, revenues per available room in San Francisco grew by 19.7% in 2011, the most of any major market in the United States, according to Smith Travel Research.