San Diego records biggest hotel sale so far this year: $165M

In what is the single biggest hotel sale so far this year, the 394-room Hilton La Jolla Torrey Pines resort has been acquired for $165 million by a Los Angeles-based investment firm that owns no other hotels in San Diego.

JRK Property Holdings, a real estate company that focuses largely on multi-family housing, was drawn to San Diego because of its stature as a lucrative hospitality market. But the real draw was the Hilton property, given its highly desirable location near the coast, said executive Shaan Bhatia.

It also helped that JRK had $350 million in investor money still sitting in a separate hospitality fund waiting to be spent.

“The Hilton was on the market, and we’d been hunting,” said Bhatia, who is head of hotel investment for JRK. “San Diego is in our view one of the major growth markets, and there’s a very strong life sciences corridor next to this hotel that makes this a very strong long-term bet to make. It’s also in a sub-market where there’s no new supply coming in.”

While the hotel’s last major renovation was a decade ago, there have since been “patchwork” refreshes, Bhatia said.

The hotel, with rooms overlooking the Torrey Pines Golf Course and Pacific Ocean, continues to do well financially, but JRK still plans to eventually invest $30 million in property upgrades, although those specific plans have yet to be finalized, Bhatia said.

“Over time, the property will need some level of upgrade, particularly the rooms,” he conceded. “But the property still performs extremely well and outperforms almost all of the local competitors in the aggregate because of its location and brand. We’re working through our plan right now but over time there should be a relatively comprehensive renovation.”

Selling the hotel was Braemer Hotels and Resorts, which noted in a news release that the sale enabled it to pay off the last of its remaining debt maturities in 2024. JRK will not own the resort property itself as the Hilton Hotel sits on city-owned land. There are 63 years remaining on the hotel’s lease with the city, Bhatia said.

While JRK used a portion of its hospitality fund to help finance the Hilton purchase, a loan was still needed, Bhatia said. High interest rates have been a key factor fueling a downturn in hotel sales statewide. Bhatia, however, pointed out that his firm was able take advantage of more favorable loans via the commercial mortgage-backed security market. In the case of the Hilton acquisition, the company put in one-third equity and took out a loan on the balance, Bhatia said.

With the purchase of the La Jolla hotel, JRK will now own a total of 1,500 hotel rooms, including the Ace Hotel in Palm Springs, the Oceana Santa Monica, five properties in south Austin, and two in San Juan, Puerto Rico, Bhatia said.

Emmy Hise, senior director of Hospitality Analytics for the commercial real estate firm CoStar, pointed out that while the Hilton Torrey Pines is among the priciest sales in the Western U.S., the price paid per room is less than comparable sales in the area.

“The Hilton is the highest-priced hotel transaction in the San Diego market since 2022,” she said, “but the price per key (room) is lower than similar hotel types that traded in the area in the past five years. This is likely due to the needed capital expenditures or required property improvement plans.”

The 35-year-old Torrey Pines property, which at one time was owned by Hilton, last changed hands in 2013 when Braemar purchased it from Ashford Hospitality Trust as part of an eight-hotel portfolio. Ashford serves as the adviser to both the Hospitality Trust and Braemar.  The last time the hotel was sold by itself was in 2003 when it commanded a price of $106.5 million.

“When you look at the price they paid per room — $418,000 — that’s still below replacement cost, and it would be extremely difficult to replace this hotel, because of its location and the fact you have to deal with the Coastal Commission,” said Alan Reay, president of Atlas Hospitality Group. “So I think it’s a very good acquisition for the buyer. San Diego is still one of the best performing markets in California.”

Nonetheless, hotel sales in California, Reay said, remain down compared to a year ago, but the decline has more to do with a disconnect between what hotel owners think their properties should sell for and the dollar figure that buyers are willing to pay.

Originally Published: July 24, 2024 at 3:47 p.m.