From Solana Beach to Downtown,
1,534 rooms sell for $114 million

Taking their cue from the region's booming tourism industry, real estate investors, led by publicly traded investment trusts, are on a San Diego hotel buying spree that shows no signs of abating.

    "What we are seeing is buyers acquiring the properties for the long term," says Robert Rauch, director of development for Crossroad Hospitality Co. "Those buyers are seeing strong fundamental growth in terms of hotel occupancy and rates in each of the last three years. Every dollar of rate increase is going to the bottom line."

    In a half-dozen sales since January, $113.7 million and 1,534 rooms have changed hands in an area stretching from Downtown to Solana Beach. Properties with new owners include the 450-room Horton Plaza Doubletree, which sold for $41.4 million; 318-room Mission Valley Holiday Inn, $19.5 million; 181-room Wyndham Garden Hotel (Sorrento Mesa), $15.9 million; 220-room Doubletree Hotel Del Mar, $16 million; 256-room Hilton Del Mar, $14.5 million; and 115-room Ramada Inn Solana Beach, $6.4 million.

    Unlike the past several years, most transactions are not at the barrel of a bankruptcy gun or similarly stressful financial situation. Still, not all sellers walk away with C-Notes spilling from their pockets. The most striking example is the Horton Plaza Doubletree. Sold by a unit of Teachers Insurance and Annuity Association which got control of the hotel in a 1990 foreclosure, Teachers estimated it had $58 million tied up in the former Omni San Diego Hotel.

    Veteran hotel consultant Jerry Morrison is aware of the hotel investment demand as he fields a growing number of calls from potential buyers. (He turns them away; it’s not his line of work.)

    "Buyers outnumber sellers and the prices are going up," Morrison says. "People who might not ordinarily want to sell see this as a pretty good time to check out any offers."

    Both Morrison and Rauch say the current boom is driven both by the lack of new full-service hotels entering the market - "Right now it is still less expensive in most cases to buy a used property than build a new one," Morrison notes - and a strong tourism economy.

    Indeed hotels are on a roll. In the first six months of the year, PKF Consulting reports occupancy is up 3.8 percent while the average room rate has risen 7.4 percent to $90.70. (Hoteliers are notoriously non-candid when replying to surveys. A separate research agency, Smith Travel Research, reports essentially the same percentage increase in hotel occupancy, but pegs the average room rate up 4.5 percent to $78.97.)

    PKF predicts continued good news with the average rate at $92 and occupancy at 71 percent by the end of 1997. With major hotels taking at least three years, and often longer, to move from the planning stages to a grand opening, Rauch expects profitability to continue to rise.

    In addition, activity by real estate investment trusts is expected to continue driving up prices as those publicly held real estate investment firms look to expand the collection of hotels in their portfolios.

    Among San Diego properties bought so far in 1996 by REITs are Horton Plaza Doubletree (Starwood Lodging Trust), Mission Valley Holiday Inn (American General Hospitality), Wyndham Garden (Hospitality Properties Trust), Del Mar Doubletree (RFS Investors) and Del Mar Hilton (Patriot American Hospitality).

    "It is not over," Rauch said of the REIT action. "There is a mass of capital looking for hotel acquisitions in San Diego."

    Could the investment climate ever produce the overheated conditions that caused the hotel real estate meltdown of the late '80s and early '90s? Maybe. Morrison says the severity of any correction may not be on par with what happened after the exuberant lending practices of the previous decade, but he does make a case for learning from history.

    "The people who are furnishing the money, and the people who are making the loans, are not the same people who were providing the financing in the 1980s," he says. "These are new people."

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    Senior V.P. Rick Sparks has reached the quarter-century milestone with CB Commercial. During the past 25 years, Sparks has been involved in more than 1,200 sale and lease transactions amounting to 6.1 million square feet of industrial space and more than 950 acres of finished land and unimproved lots with a total consideration in excess of $700 million.

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    LaSalle Partners' Pacific Centre Associates at presstime was heading toward closing escrow on the Wells Fargo Bank Building and the Home Savings Tower, both on Broadway, to GE Capital Investment Funds I, II and III for $74.3 million or $104 per square foot. GE tried mightily to reduce the price near the end of negotiations.

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    Prudential California Realty/San Diego is sponsoring a student scholarship program that will provide four $1,000 grants to graduating high school seniors who have participated in PCR Job Shadowing programs. In addition, owner Steve Games says the firm is providing $100 U.S. Savings Bonds to finalists at participating high schools.

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    The Burnham Building on India and Ash streets Downtown sold, reportedly after only seven days of due diligence, to an entity of Maier & Siebel, a real estate investment company out of Larkspur, Calif. The seller was a group led by Bob Lichter, who acquired the property a short time ago when he left as CEO of John Burnham & Co. Maier & Siebel bought the former headquarters of American Residential Mortgage Co. on Torrey Pines in June 1995.

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    David L. Malmuth, a v.p. of development at Walt Disney Imagineering and former g.m. of the Disney Development Co., has been named senior v.p. of development at The Hahn Co., the retail division of Trizec Corp. Ltd. Malmuth will work jointly with Wayne Finley, senior v.p. and director of development.

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    Compass Management and Leasing Inc. is the new manager for 525 B Street, a 22-story, 427,000-square-foot high-rise office building bought by Southwest Value Partners in May. The Irving Hughes Group Inc. represented the buyer. David A. Pino, formerly of TishmanSpeyer Properties, is general manager of the Compass office.

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    Two residential mortgage lenders, General Mortgage and Residential Leasing Professionals, have merged under the General Mortgage name, says Dick Palmer, president of General Mortgage. RLP President Rick Connolly is now General's managing partner in the North County and will work out of the Rancho Bernardo office. Palmer will focus on the company’s Mission Valley corporate office and the acquisition of new business.

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    This year’s Orchids & Onions jurors are: Paul Desrochers of National City's Community Development Commission; Harriet Gill of Friends of San Diego Architecture; Andrew Hafer, a La Jolla High School senior; Jean Hellerich, San Diego activist; J.T. Faulkner, deputy sheriff; Jeff Lynch of Par Broadcasting; Jennifer Morlan, Escondido Public Art Commission; A. Wasil, sculptor; and one anonymous juror. The 1996 O&Os will be presented Oct. 22.