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How Do We Get More Rooms?

San Francisco Hotel

Oracle's packed conference in S.F. is officially over, but the city's under-supplied hotel problem isn't. Arent Fox partner Rich Brand, who moderated Bisnow's Hospitality Summit this week, jokes about how few rooms we have: When his father visited from Florida he had to stay in Florida. Development isn't happening the way it should here in S.F. due to some major barriers to entry. People want to stay here, but the question he posed to panelists is how to add product. Rich moved here from DC and says his favorite song is "Dani California" (a combo of his daughter's name and new state name). 

TMC Financing CEO and president Barbara Morrison says hospitality has become a bigger part of her company's portfolio the past few years thanks to maximum leverage (up to 85% loan-to-value) and the attractive long-term, fixed-rate financing. S.F. is unique in the legislation surrounding SRO hotels, she says. One broker told her people are buying some of the SRO hotels and gambling on the fact they can make enough from tourist rooms. NY's Ace Hotel has a top SRO floor with separate elevator, and we may see something like that arrive in S.F.

HVS senior managing director Suzanne Mellen, who appraises hotels for a living, thinks we need ADR to catch up before we can support new development. Chicago, which has thousands of rooms coming online, proves you can keep occupancy up despite a spike in supply. She offers a theory as to why we are holding off on building more rooms: The rest of our economy is doing so well we are not racing to do hotels as much as we should, despite the lack of supply that's also aging. 

JMA Ventures CEO Todd Chapman (who reveals he's a Capricorn) says the higher or best uses in the city like office and residential are beating out hospitality. These days new hotel builds are difficult to finance. A couple years ago, major financing tools disappeared when redevelopment went away. Major new builds in the past 15 years, like the Intercontinental, were tax-increment finance deals. That doesn't really exist anymore. JMA is hoping to start on 250 rooms in Sacramento this spring. The reason that project works is it's part of a $1B mixed-use project tied to the arena, so there's less risk.

San Francisco Travel EVP and chief customer officer John Reyes confirms what everyone senses: even at 33,000-plus hotel rooms, we have more demand than supply, which has even caused him to turn demand away from the convention center. S.F. Travel is figuring out how to satisfy American Society of Hematology's request for 17,000 peak rooms in 2018. Airbnb has been a positive solution, he says. Salesforce just inked a contract with Airbnb for transient and convention rooms. He's working on ways to meet group demand by not only talking to GMs but also forming relationships with asset managers.

Chartres Lodging Group CEO and co-founder Rob Kline says it takes a long time to build something, particularly in this city. There's a rush to develop office and get buildings approved before Prop M kills off new opportunity. He doesn't think the city has embraced tourism the way NY has, where there's loads of new supply and visitors are willing to pay $550/night for a small room. He thinks our city should have a hotel on the waterfront, front and center, like all cities with a bay do. The Vitale is the closest thing we have, but he thinks it's a shame there's not the city-wide and community support to promote that kind of development.