Bay Area Local Market Snapshot

US Hotel Market Connections

Presented by: Jaime Law, HVS Assistant Vice
President

May 1, 2013
 Overview

San Francisco

Silicon Valley/ San Jose

SAN FRANCISCO MARKET TRENDS
San Francisco Hotel Market
San Francisco Hotel Market
Fishe
r man ’
s Wh
arf

tr eet V alue CBD Cluster

S
Lombard
Hotels

Union Square

Van Nes
Corrido
r
s SOMA Cluster
 San Francisco Hotel Market
Demand Generators / Attractions 1 1
1 Waterfront/Embarcadero 6
2 Union Square
1
3 AT&T Park
5
4 Chinatown
5 Moscone Center 1
24 7
6 Mission Bay
7 Financial District 2
9 1
8 SOMA
1 8 1
Major New Developments 1 4
9 Transbay Transit Center 3 5
1
0
Mission Bay 3
1
1
Warriors (NBA) Arena
1
2
Central Subway
1
Mid-Market 1
3
1
SFMOMA Expansion 0 6
4
1
5
Exploratorium
1
6
Pier 27 Cruise Ship
Terminal
San Francsico Office Space
Statistics

Source: REIS.
 SFO Passenger Traffic
Total # of Passengers

Source: San Francisco International Airport.

 Bay Area Airports Passenger
Traffic
Total # of Passengers

Source: San Francisco International Airport, Oakland International Airport, and San Jose Mineta Airport
Moscone Convention Center
Statistics

Source: San Francisco Travel Association.

Moscone Convention Center
Pace

Source: San Francisco Travel Association.

San Francisco Supply and
Demand Trends

Source: STR Global/HVS.

San Francisco Occupancy and
ADR Trends

Source: STR Global/HVS

 New Supply 1
6
Transbay
Terminal Hotel
(300 rooms)
1
Inn at the Presidio (22 room expansion) 5
1
Personality Hotels (156 rooms) Golden State
2
Warriors
Hotel (130
Holiday Inn Express (58 rooms) 1 9 rooms)
1
1
Hampton Inn (under construction) (174 rooms) 4 1
3
Hotel at 144
King Street
(130 rooms)
Limited or Select-
service SOMA Hotel 1 Mission Bay
(220 rooms) 0 Hotel (250
Total Additional Rooms: 1,454 rooms)
San Francisco Transaction
Volume
San Francisco Review of Paired Sales

1 2 3 4
Taj Campton Place JW Marriott San
Sir Francis Drake Hotel Hotel Francisco Fairmont Hotel

Date of Date of
Date of Sale Price Sale Price Sale Price Date of Sale Price
Jul-05 $65,000,000 Nov-05 $44,000,000 Apr-06 $95,000,000 May-12 $192,000,000
Jun-10 $90,000,000 Apr-07 $58,000,000 Feb-11 $96,000,000 Nov-15 $450,000,000

%Change 38% 32% 1% 134%

Months 59 17 58 41
Monthly Appreciation 1% 2% 0% 3%
Annual Appreciation 8% 22% 0% 39%

$10 million in
$20 million in renovations to renovations to the $21 million in renovations
Brand expansion in
the guestrooms, meeting meeting space, to guestrooms and public
major gateway cities
space, and public areas guestrooms, and food areas
and beverage facilities
San Francisco Transactions

4
3

4
2
1 3
2
1

Source: STR Global/HVS

 Recent Sales
1. Holiday Inn Express &
Suites Fisherman's Wharf 1
February 2013
$60.5 million; $/Rm
$240,079
Cap Rate 5.6%
5. Hotel Rex 2. Hotel Cartwright
November 2012 Union Square (Formerly
$29.5 million; $/Rm 2 Larkspur)
$313,830 4
October 2012
Cap Rate 6.8% 5 3 $16.6 million; $/Rm
$145,614
4. Fairmont Hotel Cap 7.3%
May 2012
3. Hotel Palomar*
$192 million; $/Rm
October 2012
$324,873
$58 million; $/Rm
Cap Rate 4.1%
$295,918
Cap Rate 5.4%
* Leasehold
SILICON VALLEY & SAN JOSE
Silicon Valley Existing Supply
Map
Silicon Valley Existing Supply Milpitas
North San Jose
Map
El San Jose
C am
in Airport
Palo Alto/ o
Re
Stanford al
No
University r th
El Camino Real South
Santa Clara Cluster

Cupertin
o,
Campbell Downtown
, Los San Jose
Gatos Cluster
 Silicon Valley Demand Generators
12 Major New Developments
1
2 Facebook Expansion
2
1
49ers Stadium
3
1
Apple 2 Campus
4
1
1 4 Samsung Campus
5
1
3 5 1 McEnery CC
9 1 1 1 6
1
6 Expansion
0 12 5 7
Demand Generators / Attractions 3 7 Sunnyvale Town
Center
1 Google 4 Symantec 1
3
2 Facebook 5 Dell 7
3 Apple 6 LinkedIn
7 Santa Clara Convention
8 Center 1 1
3 1 8 6
9 San Jose Convention Center 4
1 Stanford University 1
0
1 NASA Ames Research Center
1
1 Santana Row
2
1 Great America
3
Stanford Shopping Center
 SiliconMenlo
Valley New
1 Gateway (230
2
rooms)
Supply
Residence Inn by Marriott (138 rooms)
49ers Stadium Potential
Epiphany Hotel (86 rooms) Hotel Development (200
Sheraton Sunnyvale rooms)
Westin Concierge Wing (44 rooms) Aloft Hotel (175 rooms)
Expansion (134 rooms) 1
Hilton Garden Inn (174 1 Courtyard By Marriott
rooms) 5
Homewood Suites (138 rooms) Hotel Vue 3 North San Jose (157
rooms)
1
(145 rooms) TownPlace Suites (107
7
Courtyard rooms)
by Marriott Residence Inn
(145 rooms) (175 room);
SpringHill Suites
Residence Inn by 1 (146
1 rooms)
Marriott “The 4 6Hampton
Oaks” Aloft Hotel (123 Inn
(122 rooms) rooms) (162 rooms)

Total Additional Rooms: 2,478

Development
Silicon Valley ground-upCost
construction cost (2011 and 2012):

 Ranged from $200,000 to 275,000 per room.

 Limited- to select-service hotels ranging from 110 to 175

rooms.

 Includes land cost prior to entitlements and building permit.

Strict entitlement process in Santa Clara County vs. San Jose.

 Land acquisition costs range from $25,000 to $40,000 per

room. Note, land cost are unadjusted for entitlements or
building permits.

 Cost of conversion for rehab building:

 Limited- and select-service hotel range from $108,000 to

Silicon Valley Office Space
Statistics

Source: REIS.
McEnery Convention Center
Statistics

Source: Team San Jose.

Silicon Valley Supply and
Demand Trends

Source: STR Global/HVS

Silicon Valley Occupancy and
ADR Trends

Source: STR Global/HVS

San Francisco vs. Silicon
Valley Performance

Source: STR Global/HVS

 On The Market:
Recent Sales and For Sale
3. San Antonio Inn
2012
Embassy Suites Milpitas
$11.02 million; $/Rm On The Market:
$190,000 Hyatt Santa Clara
* Conversion to an
environmentally friendly
6
193-unit, four-story
apartment project.
3 5
1. Fontaine
Inn
2. San Jose Airport 2 February 2013
$4.18 million;
Garden Hotel $/Rm $77,315
November 2012
Cap Rate 11.0%
$24 million; $/Rm $46,875
4
1
On The Market:
San Jose
Marriott
Downtown
 Build-Buy Cycle – San Francisco
$2,405,000
200
$2,205,000
$2,005,000
$1,805,000
150
$1,605,000
$1,405,000
$1,205,000
100
$1,005,000
$805,000
$605,000 50
$405,000
$205,000 7 8 12 10 9 10 9 8 10
5 5 1 4
0
$5,000 0
 Build-Buy Cycle – San Francisco
$2,405,000
200
$2,205,000
$2,005,000
$1,805,000
150
$1,605,000
$1,405,000
$1,205,000
100
$1,005,000
$805,000
$605,000 50
$405,000
$205,000 7 8 12 10 9 10 9 8 10
5 5 1 4
0
$5,000 0
 Build-Buy Cycle – San Francisco
200

150

100

50

7 8 12 10 9 10
5 5 0 1 1
$5,000 0
Build-Buy Cycle – Silicon Valley
Highlights
Additional capitaland Outlook
is being spent on renovation of acquisitions.
 1st quarter 2013 did not meet expectations for group demand and
the big boxes started discounting rates in February due to the
weak convention pickup. Also, the 1st quarter 2012 saw a major
group with a $50 rate premium which was not repeated in 2013.
The 2nd and 3rd quarters of 2013, however, are anticipated to be
strong.
 Occupancy compression will drive ADR growth going forward.
 America's Cup: some missed opportunities earlier this year, but if
compression builds up it'll be an added bonus.
 Self-contained group business is strong; however, incentive and
pharmaceutical groups are not back yet.
 The projected levels of occupied office space indicate that there
is opportunity for more lodging product.
 The Renoir on mid-Market closed down two weeks ago in
preparation to start a 14-16 month renovation with EB5 financing
and will re-open in Fall 2014.
Highlights
 and
Developers actively Outlook
looking at ground-up construction projects in
the Silicon Valley with value-add features, primarily among select-
service brands.
 Developers are primarily pursuing select-service projects due to
their favorable economics.
 Silicon Valley hotel transactions: sellers are being unreasonable
and new developments are anticipated to create future critical
mass. Consensus is to hold. Obsolete hotels purchased for their
highest and best use and converted into premium residential
projects.
 At the current time we foresee no end in sight to the current up-
market. Though developers are out in droves, and only time will
tell whether supply additions will be restrained so that the market
fares better in any future downturns.
 Thank You!
For more information, please contact

Elaine Sahlins, HVS Senior Vice President

+1 415-268-0347
esahlins@hvs.com

Jaime Law, HVS Assistant Vice President

+1 415-268-0359
jlaw@hvs.com
Jaime Law
HVS Assistant Vice President
Jaime Law is an Assistant Vice President with
HVS Consulting and Valuation in San Francisco.
Jaime offers expertise and extensive consulting
experience with owners, operators, and
developers on a broad variety of hospitality
projects, including luxury hotels and gaming
facilities.

He specializes in valuations, market studies, and

feasibility reports, and has performed over 300
appraisals and consulting assignments for hotels
and resorts in the United States and Caribbean,
as well as Central and South America. Prior to
Elaine Sahlins
HVS Senior Vice President
Elaine Sahlins is a Senior Vice President with HVS San Francisco. She joined
the firm in 1997, and has authored the annual Hotel Development Cost Survey
since 1998. She specializes in resort feasibility studies, appraisal of complex
leases, partial interest appraisals, management company valuations, and hotel
market analysis. Her other experience includes mixed-use projects, and she is
well-versed in the appraisal of general commercial real estate. She brings a
seasoned and passionate approach to her work, and has appraised properties
in a wide variety of markets.

Elaine is a state-certified general appraiser in California, and a current

candidate for MAI designation from the Appraisal Institute (expected 2014).
She contributes regularly to the industry with frequent publications. She holds
an undergraduate degree from Barnard College, Columbia University in New
York City and an MPS degree in Hotel Administration from Cornell University.