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Why Oxford Capital Bought Four S.F. Hotels After Having None

Looking at San Francisco's growing average daily rate, reopened Moscone Center and incandescent office market, Chicago-based Oxford Capital Group finally felt poised to reposition several downtown San Francisco hotels, and in April it did just that. 

Americania Hotel

In an off-market deal and after months of negotiations, the company acquired Hotel Vertigo, Good Hotel, Americania Hotel and Carriage Inn from American Pacific International Capital — the result of a yearslong look by Oxford Capital at the alluring but pricey S.F. hotel market.

"We've been looking at opportunities in downtown San Francisco for years," said Oxford Capital Group Chief Operating Officer Sar Peruri, a panelist at Bisnow's upcoming Bay Area Hospitality Summit.

"I think we've just struggled with the pricing. Everything is expensive — from construction to land prices — and returns are a bit thinner," he said. "We've been pretty numbers-driven and analytical."

Aside from presenting headwinds to new development, San Francisco's high construction, land and labor costs have rewarded hoteliers able to acquire and/or reposition hotel inventory in the city over the last several years, both Peruri and San Francisco Travel CEO Joe D'Alessandro said. 

"It's the most expensive city to build and operate hotels in the country, so profitability is challenging," D'Alessandro said. "But we're one of the healthiest markets in the country with one of the highest average daily rates and occupancies in the nation. Part of that is because we haven't seen much new hotel inventory [built] in San Francisco in the last 10 years, and a lot of the new hotels that have opened have been smaller."

There are nearly 1,700 rooms under construction across 10 hotel developments (nine of which are upper-priced), according to Kimpton Hotel & Restaurant Group Senior Vice President of Development Tiffany Cooper, another panelist at Bisnow's upcoming event. But that output is not as high as it may seem.

San Francisco's Hotel Vertigo at 940 Sutter St.

"If you stack that up against other major urban markets, that’s a very low figure. If you look outside of San Francisco and in the Bay Area at large, that number more than doubles," she said. "It’s a constrained market because it’s just a difficult place to introduce new hotels."

In addition to low supply, San Francisco's hotels have also enjoyed increased demand from each of the markets three key consumer types, Peruri points out: business travel, convention-goers, and leisure and international travel. 

Located in Nob Hill (Hotel Vertigo) and SoMa (Good Hotel, Americania Hotel and Carriage Inn), Oxford's new portfolio assets are situated around demand generators for each of those three categories, like the newly expanded and reopened Moscone Center.

"They're attractive areas and in the path of growth, with a lot of new office," Peruri said, referring to San Francisco's SoMa as a locus of new office development. "All of them are pretty central and proximate to Moscone Center, Union Square and the Financial District."

Meanwhile, San Francisco has enjoyed 10 consecutive years of record tourism growth, D'Alessandro points out.

Even though short-term factors like a strong dollar point to international visitors, who make up a large portion of visitors to S.F., coming in smaller numbers, Oxford Capital is still bullish on San Francisco amid a nationwide growth slowdown cited by him, D'Alessandro and Cooper. 

"In San Francisco, unlike many of the major markets around the country, there are some nice tailwinds supporting the hotel market," Peruri said. 

Join Sar Peruri, Kimpton Hotel & Restaurant Group Senior Vice President of Development Tiffany Cooper, Sonder Director of Real Estate Jermaine Gause and many others at Bisnow's Bay Area Hospitality Summit on Oct. 24 at San Francisco's Hotel Fairmont.