Guggenheim Lends $36M in Silicon Valley Hotel Acquisition
By Matt Grossman April 4, 2019 11:31 am
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The investors behind the acquisition of a Silicon Valley hotel financed their purchase with a new $36.3 million loan, according to Sonnenblick-Eichner, which arranged the debt deal.
Two Southern California real estate firms, Somera Capital Management and Tyler Development, bought the DoubleTree by Hilton in Campbell, Calif.—about five miles southeast of San Jose—for $59.1 million, the Silicon Valley Business Journal reported. The 12-year acquisition loan, with 30-year amortization, came from an institutional lender at a fixed interest rate of 4.48 percent, a Sonnenblick-Eichner spokesman said.
A source with knowledge of the transaction identified the lender as Guggenheim Partners, based in New York City and Chicago. Not authorized to disclose the source of the debt, the person requested anonymity.
Midsize boutique hotels have faced challenges finding loans in some cases, but brand-name franchises like Hilton are in high demand in competitive capital markets, according to the deal’s brokers.
“Validating the tremendous amount of liquidity in the debt capital markets, we received 22 competitive loan quotes for this financing from both life insurance companies and CMBS lenders,” Elliot Eichner, one of the founders of Sonnenblick-Eichner, said in a statement.
Six million dollars from the proceeds will be used to renovate the 169-room hotel, at 1995 South Bascom Avenue, the debt brokerage said. Standing in a shopping center, called The Pruneyard, that it shares with a Marshalls store, a Trader Joe's supermarket and several restaurants, the lodging is just off Highway 17, which connects San Jose, California’s third-largest city, to Santa Cruz, a popular beach town.
If business results are any indication, the southern tip of Silicon Valley—which is home to tech giants like Adobe, eBay and PayPal—represents a smart spot to invest in nightly rooms. Hotel occupancy in the market is higher than 80 percent, above national averages, according to the Silicon Valley Business Journal. What’s more, room rates are rising faster than inflation: revenue per available room grew almost eight percent in between January 2018 and November 2018. And demand from business travelers especially should remain high, given Downtown San Jose is on track to double its office-space capacity, according to the San Jose Downtown Association.
On the other hand, more competition might not be far behind. If planned hotel projects come to fruition, the number of rooms available downtown would grow by a third.
Representatives from Guggenheim, Somera Capital and Tyler Development didn’t immediately respond to inquiries.
