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Oxford Capital To Continue Operating San Francisco Hotels After 'Friendly Foreclosure'

Chicago-based Oxford Capital Group handed over the keys to four San Francisco hotel properties through a deed-in-lieu of foreclosure earlier this month, the San Francisco Business Times reported. But Oxford will continue to operate the properties after what is often known as a "friendly foreclosure" process.

Acore Capital, the San Francisco lender that provided financing for three SoMa assets and one Lower Nob Hill property now controls the assets, at least on paper. The assets include the 152-key SoMa House at 121 Seventh St., the 121-key Hotel Garrett at 112 Seventh St., the 48-key Hotel Fiona and Hotel Julian at 940 Sutter St., a property made famous by Alfred Hitchcock’s Vertigo.

Hotel Virgo is being redeveloped into the Hotel Julian in Lower Nob Hill.

“This is a friendly restructuring that has been in the works for about six months now,” Oxford Capital Chief Operating Officer Sarang Peruri told Bisnow by phone this week. “We have been able to lead the number of stakeholders involved in this project towards a more sustainable capital stack. This was a good news story and we were all sort of celebrating because we were able to bring this complicated transaction to a close after months of discussions.”

American Pacific International Capital sold the four-property portfolio to Oxford in April 2019 for nearly $141M, or $300K per room. For the acquisition, Acore fronted Oxford nearly $113M in financing and, according to the Business Times, it owed the lender about $60M.

Acore did not respond to requests for comment.

The three Seventh Street properties had soft openings last fall and Oxford Capital will oversee the opening of the Hotel Julian, which is expected to open by year’s end, according to Peruri. A new sports-themed restaurant at the SoMa House and guest room expansions at both SoMa House and Hotel Garrett are underway. 

Formerly known as Hotel Vertigo, Hotel Julian in Lower Nob Hill will debut in the coming weeks after a “top-to-bottom renovation,” Peruri said. Additions include a two-story, indoor-outdoor wine bar and cocktail lounge called Carlotta’s, a nod to Hitchcock’s Vertigo.

San Francisco’s hospitality sector remains “very challenged” after the pandemic, according to Chris Darling, Green Street’s lodging sector head.

Historically, the success of the sector has been tied to convention activity at Moscone Center, which has ground to a near halt in recent years.

Darling said Green Street doesn’t expect RevPAR to recover for another five years. Occupancy was at about 66% last year, compared to 86% in 2019. 

CBRE expects RevPAR to rise minimally to $151 by the end of 2024, above the national average of $101 but well below 2019 levels of $203 in San Francisco.

In spite of its slow recovery, Oxford, which invests in Los Angeles, Chicago, Boston and Portland, Oregon, hospitality assets, is still eyeing potential acquisition targets in San Francisco.

“The key in many of these urban markets that are still recovering is to have flexible capital structures. It's going to take longer to execute business plans and optimize returns. And you have to have patient capital, and you have to have stakeholders with a long-term outlook,” Peruri said.