The Sheraton Pleasanton Hotel, a prominent inn located next to Stoneridge mall that tottered into default and then foreclosure, has been bought by owners who plan to upgrade the complex.
A partnership called Pleasanton Lodging LLC paid $12.3 million for the 170-room hotel in Pleasanton on Feb. 3.
Amid a struggling commercial real estate market, that price was a relative bargain, according to principal executives with the buying group, which is a partnership of realty investment firms Sethi Enterprises and Kapoor Enterprises.
"It was an attractive price," said J.P. Sethi, the top executive with the eponymous Sethi Enterprises. "I would say the price was 30 percent below what you would have seen in normal times."
To further sweeten the deal, the original lender that foreclosed on the hotel, Mesa West Real Estate Income Fund, provided financing to the buyers to accomplish the purchase. The transaction was arranged through PKF Capital, a realty brokerage that specializes in hotel properties.
The new owners intend to undertake a wide-ranging upgrade of the hotel, Sethi said.
"We will have a totally brand-new lobby, we will upgrade the bar, the restaurant, some of the new rooms, improve the exercise and recreation center, add new carpeting, wallpaper, furniture," Sethi said.
Price tag for the upgrades: $2 million, he estimated.
The prior owners, a partnership called AG Inn at the Mall that lost the property through the foreclosure, stopped the renovation when they ran into financial problems, said Henry Bose, a managing director with PKF Capital.
The hotel had previously undergone $4.6 million in renovations, according to county property records and industry watchers.
Numerous Bay Area hotels have slumped into defaults or foreclosures on their mortgages over the last year-plus.
At the end of 2009, seven times as many hotels in the nine-county Bay Area had tumbled into defaults on their mortgages than was the case at the end of 2008, a new survey by Atlas Hospitality Group shows.
The value of the Bay Area hotels in arrears on their property loans totaled $1.1 billion in 2009, according to a report by Real Capital Analytics.
That's 12 times the $90 million in delinquent loans for Bay Area hotels in 2008, Real Capital estimated.
Among the prominent hotels that had gone into default or foreclosure:
- The 335-room Fremont Marriott Silicon Valley, in default on a $38 million note. The Homestead Village in San Ramon is also default.
- The Sheraton Pleasanton Hotel, the Coliseum Suites hotel in Oakland, and the Brentwood Hotel in Brentwood were shoved into foreclosure by lenders.
- The Renaissance Stanford Court Hotel and Four Seasons Hotel, both in San Francisco, went into default on their property loans.
- Moorpark Hotel in San Jose, Days Inn on Fourth Street in San Jose, Homestead Studio Suites in San Mateo and Homestead Studio Suites in San Carlos have defaulted on mortgages.
More hotels will become mired in foreclosures as the economy sours further, warned Alan Reay, president of Atlas Hospitality, which tracks the California hotel market.
"In California alone, we have 67 hotels being foreclosed on, and 320 in default," Reay said. Both numbers are about five times the totals from a year ago, he estimated. "The number of hotel defaults is growing exponentially."
Prices have melted down for hotels, he said.
"From the 2007 peak in values, prices for hotels have fallen 50 to 80 percent," Reay said.
As lenders dangle foreclosed hotels before investors, the buyers have found some choice morsels.
"Investors are starting to feel we have reached or gotten near the bottom," said Bose said. "Prices are stable enough that you can see a good future with these investments."
