Wine Country gets its second $2 million per key hotel sale in 2021

https://www.bizjournals.com/sanfrancisco/news/2021/11/02/four-seasons-napa-valley-sunstone-alcion-sale.html

A view from the Napa Valley Four Seasons on-site restaurant, TRUSS, looks over the resort’s two pools and acres of vineyards as part of the property, set within a working winery. The hotel has been reportedly sold to Sunstone Hotel Investors Inc., for $2.1 million per key, the second-highest key price ever for a U.S. hotel.
By   
Staff Reporter, San Francisco Business Times
 Updated 

The high-end hotel acquisition market is still red hot. Casein point: The fi ve-star luxury Four Seasons Napa Valleyresort is being sold for a near-record per key price of $2.1million, according to a report in the Wall Street Journal.

Irvine-based Sunstone Hotel Investors Inc. is purchasing the 85-room hotel for about $175 million from Boston-based property fund manager Alcion Ventures, the Journal reports, citing people close to the transaction. If the deal closes in the fourth quarter as anticipated, the $2.1 million key price would amount to the second-highest U.S. hotel deal ever, eclipsed only by Hyatt Hotels Corp.’s acquisition of the Ventana Big Sur resort this summer at $2.5 million per key.

The Napa Four Seasons, located at the base of Mount St. Helena and replete within a working winery, opened Oct. 1.It boasts some of the highest hotel rates in the country — at over $2,200 for a standard guest room for this Saturday night, per its website.

Momentum for high-end hotel deals — particularly luxury resorts in destination nonurban markets such as Wine Country — has been undeterred by the pandemic and were hotter than ever in the Bay Area through the first half of the year.

Prior to March 2020 the highest ever per key price was the December 2019 sale of the Montage Beverly Hills to Maybourne Hotel Group for just over $2 million per room. In 2015 , when David Geffen sold the 47-room Malibu Beach Inn to Mani Brothers Real Estate Group, the record stood at$1.7 million per key.

But as room demand resurged quickly and then surpassed2019 levels over last summer and more robustly in 2021,three more deals have now passed the $2 million per key mark, two of them in Wine Country and all in or close proximity to the Bay Area — the Montage Healdsburg, the Ventana Big Sur, and now the Four Seasons Napa Valley. “The message we’re looking at here is, we’ve gone through the deepest downturn in the nation’s history in terms of hotel business and yet here we are,” said Alan X. Reay, president of Atlas Hospitality Group, an Irvine-based hotel consultancy. “It seems the pricing has no limit in terms of what people will pay for location.”

“The message we’re looking at here is, we’ve gone through the deepest downturn in the nation’s history in terms of hotel business and yet here we are,” said Alan X. Reay, president of Atlas Hospitality Group, an Irvine-based hotel consultancy. “It seems the pricing has no limit in terms of what people will pay for location.”

Luxury market roars back

Nationally, luxury hotels have rebounded quicker than any other hospitality segment. The average daily rate for U.S. luxury hotels this year through September was $336,compared with $303 for the same period in 2019 according to hotel data firm STR. In Wine Country demand is especially strong during the current harvest season, despite the increasing presence of wild fires in the region which devastated some hotels and wineries in 2020.

Throughout the pandemic hotel owners were inclined to hold out for better value until tourism and corporate travel had recovered more robustly, Reay said. In the luxury segment that time has arrived, at least for Sunstone, the real estate investment trust buyer in two of the four deals with a key price over $2 million. The further established comp could lead to more deals of that size in the near future, Reay added.

“When you see these kind of prices, I think you’ll have a situation where owners if they had even been contemplating selling prior to Covid, they’ll be taking a really hard look at the market today and thinking, it might be a long time before I see these kind of prices again,” Reay added.

In April 2021 Sunstone acquired the 130-room Montage Healdsburg in Sonoma County for just over $2 million per key from developer Ohana Real Estate Investors for a total value of $265 million. The company told investors at the time it expects the resort will generate a 6% to 7% net operating income yield on the total capital invested.

Sunstone (NYSE: SHO) did not respond to a request for comment on Tuesday. Over the years the REIT, which also owns one of the Bay Area’s largest hotels in the 821-roomHyatt Regency San Francisco, has kept up a portfolio of large and convention-oriented hotels, so the shift into the high-end boutique luxury market with these two mega acquisitions is notable. With this year’s acquisitions Sunstone has three Bay Area hotels and six total in California.

John Arabia, Sunstone’s CEO since 2015, abruptly resigned in September out of “mutual agreement to separate” with the Board of Directors, although the company specified Arabia’s exit “were not related to any matter regarding the Company’s financial condition, reported financial results, internal controls or disclosure controls and procedures.”

At the time of the Montage Healdsburg deal Arabia said the acquisition was off -market and came from “leveraging our industry relationships” and a price “at a discount to what it would cost to develop today” He told analysts on his last earnings call in August that through the second quarter the Montage Healdsburg was running ahead of expectations at an average daily room rate of over $1,000.

“There’s been a lot of focus on price per key,” Arabia said in response to an analyst’s question during the call. “But when you take a look at the economics of that hotel, the economics of that hotel will generate as much EBITDA as several 500- to 600-room hotels.”

Alcion Ventures also did not respond to a request for comment. The firm has worked with Four Seasons on
several major projects in the last decade, as capital partner in development of the flagship Four Seasons Hotel Toronto(opened in fall 2012) and reprising the role with the Four Seasons Private Residences in Los Angeles.

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