The City’s biggest industry — hospitality — may be coming back sooner than expected, new data indicates.
“In general, we are a market that’s finding its bottom,” said Rob Kline, president and co-founder of The Chartres Lodging Group LLC of San Francisco, which operates about 100 properties worldwide. “Last year was a very difficult year for the Bay Area in general. This is a very difficult year.”
The potential turnaround is one factor that prompted Chartres to put its storied Sir Francis Drake Hotel on the market.
“We purchased it nearly five years ago with a holding horizon time frame of five years,” Kline said. “The debt is coming due and that’s a motivator, but the primary reason is the tremendous amount of investor interest in the San Francisco hotel market.”
“We are not in default in any way on that loan,” Kline noted.
The most recent data from Smith Travel Research indicates the San Francisco hotel business is up 2.5 percent for the first two months of this year.
Business is flattening out and starting to increase, but it’s not a big increase, said Alan X. Reay, president of Atlas Hospitality Group, the state’s leading hotel broker.
“It’s not going to snap back,” Reay cautioned. The economy is still fragile. In a study his firm released this week, 106 Bay Area hotels were either in foreclosure or mortgage default in the first quarter of this year.
The City’s convention business is projected to decline this year from 854,000 room nights to 787,000 room nights this year, the San Francisco Convention and Visitors Bureau reports.
The slow economy, weak convention business and continued labor union unrest are negatives when selling a hotel property.
But there are no major hotels being built, land is scarce and there are tremendous costs to enter the market, Reay said.
“There’s always going to be strong demand for a trophy property like the Sir Francis Drake in a destination market like San Francisco,” he said.
Research conducted for Chartres shows an almost perfect correlation over 20 years between the hotel markets in New York City and San Francisco.
New York has shifted upward, Kline said, despite a 7 percent growth of new rooms. “In this market, there’s zero supply growth planned,” he said.
“Looking at the long-term history, this market will bounce back here as well and the bounce back will be quite steep because there’s no new supply.”
Sir Francis Drake Hotel
- 450 Powell St.
- 416 rooms
- Built in 1928 for $5 million
- Bought for $65 million in July 2005
- $20 million in renovations