RLJ Lodging Trust announced that it has closed on the previously announced acquisition of the 156-room Residence Inn Palo Alto Los Altos for a purchase price of $70 million, or approximately $449,000 per key. The purchase price represents a forward capitalization rate of approximately 8.1 percent on the hotel’s projected 2016 net operating income. The company assumed $33.4 million of existing debt and funded the remaining portion with cash available on the balance sheet.
The hotel, which is located in the heart of Silicon Valley, recently underwent a comprehensive renovation, including upgrades to the public spaces and all the guestrooms. The company projects that during its first full year of ownership, the hotel’s revenue per available room will represent an 86-percent premium to the company’s 2014 reported RevPAR.
“We are excited to add this recently renovated hotel to our portfolio and to further expand our West Coast exposure,” commented Thomas J. Baltimore Jr., president and chief executive officer. “The acquisition of this hotel is immediately accretive to our portfolio and its central location in Silicon Valley, a leading technology hub, should allow it to benefit from the region’s strong fundamentals.”
Silicon Valley has long been recognized as the global technology center of the world due to its high concentration of venture capitalists, start-ups, and some of the world’s largest technology companies, as well as its focus on technological innovation, research & development and investment. The emergence of new technology platforms such as mobile, cloud, cyber security and analytics are driving growth in the area.
The hotel’s submarket is exhibiting strong hotel fundamentals with a RevPAR increase of 15.8% in 2014 and an increase of approximately 15.3 percent for the first six months of 2015, per PKF Hospitality Research.
Palo Alto is also home to a diverse base of corporate, research and education related demand generators. Major corporate employers in close proximity to the Hotel include well recognized names such as Hewlett-Packard, VMware, SAP, Google, LinkedIn, and Intuit, among others. The Silicon Valley office market supports nearly 67 million square feet of existing space and with 5 million square feet of space under development, the region is expected to continue to bring new corporate demand generators. The Hotel is also conveniently located near the Stanford Research Park and Stanford University, one of the most prestigious universities in the nation.
With a growing base of demand generators, the Silicon Valley hotel market is poised to see a strong year in 2016, helped in part by Super Bowl 50 which is scheduled to be held at the Levi Stadium in Santa Clara, Calif., next year.
The company believes that this recently renovated hotel is well positioned in this attractive, growing market. With the addition of this asset, the company now owns 127 hotels, with approximately 21,100 rooms, located in 22 states and the District of Columbia.