Development, Demand Has Silicon Valley Hotels Trending
Hotels in Silicon Valley are reaping the benefits of sharing the same zip codes as several widely successful international technology companies.
By Bryan Wroten
REPORT FROM THE U.S.—Known for the success of the technology companies that call the area south of San Francisco home, Silicon Valley, California, is one of the U.S. hotel markets experiencing above-average performance and attracting the attention of owners and developers across the country.
Silicon Valley is actually a collection of a number of communities in and around Santa Clara County. Early in its development, the area was home to a handful of companies that “boomed and busted,” said Alan Reay, president of Atlas Hospitality Group. Now there are well-established companies with incredible office campuses that draw in business travelers—as well as a growing number of leisure travelers—from around the world.
Northern California didn’t take the same hit as Southern California did during the downturn, Reay said. That—along with less overbuilding, scarcity of land and barriers to entry—has contributed to a “tremendous amount of interest” and appreciation in the marketplace, he said. The Santa Clara/Silicon Valley area is probably in the top five, even top three, desirable markets in California, he added.
Looking long-term, “the Silicon Valley area is going to be a good investment,” Reay said.
For the purposes of his company’s surveys, Reay said he classifies Silicon Valley as Santa Clara Country. The sales survey showed an 8% decline in transactions in 2016, he said, dropping from 13 hotels to 12. The median price per room dropped by 2%, but Reay advised not to look too deeply into that because there wasn’t a large volume of sales.
“It’s a stabilized market,” he said. “Not many are wanting to sell.”
Hersha Hospitality Trust acquired the Courtyard by Marriott Sunnyvale Mountain View in 2016 for $75 million. The company also owns the TownePlace Suites by Marriott Sunnyvale Mountain View and the Sanctuary Beach Resort in nearby Monterey Bay, while Hersha Hospitality Management operates three additional properties in the area. Hersha President and COO Neil Shah said his company focuses on investment clusters, particularly in areas of high innovation. Over the past five years, the company has invested approximately $350 million in California overall.
“Hotels are very expensive in Silicon Valley because it is a market that’s very attractive to U.S. investors and international investors, long-term and short-term investors because there’s such solid growth,” he said. “It’s hard to find great opportunities. That’s why it’s taking us longer in Silicon Valley to achieve putting together a larger cluster.”
Chatham Lodging Trust acquired four Silicon Valley Residence Inns in 2014. EVP and COO Dennis Craven said the company was familiar with owning and operating hotels in the market and is a strong believer in Silicon Valley. The real estate investment trust could consider further hotel purchases in the market, he said, as strong demand offsets new supply to make it a great long-term market.
“Silicon Valley is the hub for job growth in the country, and some of the largest companies in the world are investing billions of dollars in the valley, ensuring the long-term viability of the valley,” he said by email.
Under the right conditions, Craven said Chatham would consider selling off one of its Silicon Valley assets to deliver higher returns to shareholders.
“We would opportunistically sell one of the assets and invest in a different asset or expand an existing asset within the market or even another market that would deliver better returns,” he said. “Additionally, we might look to divest an asset if capital expenditures were burdensome.”
Tough for development
Santa Clara County opened two hotels in 2016, a drop from six new openings in 2015, Reay said. There were six hotels with 893 rooms under construction by the end of 2016, he said, which is close to 2015’s numbers…