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Developers, Investors Pour Into Wine Country's Hospitality Market

The hospitality market in the Bay Area’s wine country is undergoing a flurry of activity. After little new supply following the last downturn, thousands of rooms are in the works and investors are paying big bucks to get their market share.

Hotel Yountville

Room supply rose by 1,300 rooms to 4,700 from 2006 through 2010 in Napa Valley, but remained steady until 2016 when over 100 rooms were added, according to HVS. This year, more than 1,000 more rooms are in various stages of planning in Napa Valley. Developers have already begun or will begin construction on over 400 rooms in Napa Valley and Sonoma County with openings planned for 2018 and 2019.

New investors are paying high prices for existing hotels in the region, which is helping spark additional interest for new hotels and renovating current hotels. Sales in the last few years have ranged from $115K/room to over $1.2M/room. Ashford Hospitality Prime bought the 80-room Hotel Yountville in May for $96.5M ($1.2M/room), two years after it bought the 62-room Bardessono Hotel and Spa in Yountville for $85M ($1.37M/room). Calistoga Ranch went on the market earlier this year, and it could sell for $100M.

New hotels also are receiving significant financing, jump-starting new development. Stratus Development Partners will begin construction on two Cambria Suites in Sonoma County and Napa Valley in September following the closing of two first lien loans for construction worth $42M. The loans were secured by HALL Structured Finance.

Rendering of the Cambria Suites expected to open in Napa in 2019

“The strength of tourism in the Napa Valley and Sonoma wine industries will be a major demand-generator for these hotels,” HALL Structured Finance President Mike Jaynes said. “There are very few sites left in the region that are entitled for hotel development.”

About 3.5 million visitors spent $1.9B in Napa Valley in 2016. The total number of visitors increased 6.3% last year compared to 3.3 million in 2014. Hotel guests spent an average of $401/person in 2016, an increase of 3% compared to 2014.

A four-story, 90-room Cambria Suites at 320 Soscol Ave. will be built 1.5 miles south of Downtown Napa and received $19.8M in construction financing. The 135-room Sonoma Cambria Hotel, which received $22.1M in construction financing for a site at 5870 Labath Ave. in Rohnert Park, will be near wineries, Sonoma State University and Graton Resort and Casino.

Both hotels, which are expected to open in 2019, will have a restaurant, an outdoor pool, a fitness center, guest laundry facilities, a business center, a sundry shop and meeting space. Hospitality Funding Inc. and Silver & Associates Chairman Scott Silver brokered the loans. Another Cambria hotel is in the works in San Jose.

Bald Mountain Development began its $200M Four Seasons Resort and Private Residences Napa Valley earlier this year. The 85-room luxury hotel will include 20 for-sale homes, which are available for pre-sale. The resort is expected to open spring 2019 with residencies delivered at the end of 2018. The hotel, designed by John Hill, will include a spa, a restaurant, a bar, a general store, a pool and a fitness center. Residents also will have the option of participating in a short-term rental program at the resort.

Rendering of Hotel Trio in Healdsburg

Healdsburg will soon get a $24M 122-room Hotel Trio. The under-construction 82,638 SF hotel at 110 Dry Creek Road is expected to deliver in April. The hotel will offer 13 one-bedroom units and 109 studios and will be within walking distance of local wineries. Amenities will include on-site bike sharing, a bar, a meeting room, an outdoor pool, a barbecue area, a lounge, a fitness center and multiple outdoor patios with fireplaces.

General contractor R.D. Olson Construction heads up construction on the project and partnered with Axis/GFA Architecture + Design, ZFA Structural Engineers, CSW/Stuber-Stroeh Engineering Group, Robison Engineering and Design Force Corp. The contracting firm is working with Seaview Investors on this hotel and three other projects, including AC Hotel in Irvine and H Hotel in Los Angeles.

Acacia House at Las Alcobas Napa Valley in St. Helena

Las Alcobas Napa Valley secured $62M in financing, which was arranged by CBRE Hotels. The 86-room hotel recently opened after a complete renovation and repositioning of its historical building, Acacia House, and the construction of six new buildings in St. Helena. The Acacia House, constructed as a private residence in 1907, now serves as the hotel’s restaurant.

Additional amenities include 3,900 SF of meeting space, an outdoor heated swimming pool and a 3,600 SF full-service spa. The hotel’s interiors were designed by Yabu Pushelberg, while the hotel’s design and direction was guided by Las Alcobas Hotels & Resorts, an affiliate with Marriott’s Luxury Collection.

CBRE Hotels Senior Vice President Marc Sallette and senior associate Olga Lepow secured the loan on behalf of borrower Presidio Cos. The five-year floating rate non-recourse bridge loan was for 65% loan-to-value and replaced a construction loan and subordinate financing. Goldman Sachs Bank USA and an affiliate of Ohana Real Estate Investors served as the lenders.

CORRECTION, SEPT. 26, 2:50 P.M. PT: Some of the company names involved on Hotel Trio were incorrect in a previous version of this story. The story has been updated.