San Diego Business Journal

An overall strategy to fine-tune its balance sheet has prompted Starwood Hotels & Resorts Worldwide Inc. to place some of its assets on the block, including the posh Westin Horton Plaza Hotel, a high-ranking company executive has confirmed.

"With occupancy rates averaging in the mid-80 percent range, it's actually one of the more profitable hotels that we own," said Joe Terzi, who manages the White Plains, N.Y.-based firm's Southern California region.

The 450-room Westin Horton Plaza on Broadway Circle in Downtown San Diego , adjacent to Horton Plaza-Westfield Shoppingtown , includes a sports bar and about 18,600 square feet of meeting space and was acquired by Starwood in 1996 for about $46 million.

Terzi, a former chairman of the San Diego Convention & Visitors Bureau, said the Atlanta hotel brokerage firm of Hodges Ward Elliott is representing Starwood in the offer. The company declined to comment.

Terzi also said there was no specific asking price for the property when it went up for bid about two months ago to a select group of pre-qualified investors.

Buying Low And Selling High

Alan Reay, the president of Costa Mesa-based Atlas Hospitality Group, one of Southern California's largest hotel brokers, placed the value of the Westin Horton Plaza between $120 million and $130 million.

Terzi said Starwood targeted about 10 investors, adding that the company is in discussions with several that responded with bids. He declined to say how many.

None of the Westin Horton Plaza's approximately 400 employees would be affected by the pending sale, since the hotel would continue to carry the Westin flag and Starwood would continue to manage it, Terzi added.

"There are a lot of requirements in the sale, but two things are key," he said. "First, the hotel will maintain the flag, so it will remain a Westin, and the second responsibility (of the buyer) is to develop a new hotel with us."

Aiming At Five Stars

Terzi did not give specifics on Starwood's expansion plans for San Diego, but said the firm was finalizing a management agreement for the historic, 273-room U.S. Grant Hotel in Downtown. It was sold to the Sycuan Band of Kumeyaay Indians in 2003 and is scheduled to reopen in the first quarter of 2006 following a $48 million renovation project.

"We're in final negotiations on the management agreement for the U.S. Grant as a Starwood Luxury Hotel Collection, believe it will be a five-star property," Terzi said.

According to industry analysts, Starwood, which is traded on the New York Stock Exchange under the symbol HOT, plans to add the French hotel brands Louvre and Le Meridien to its portfolio. The company's portfolio includes 733 hotels with roughly 231,000 rooms, placing it eighth in a ranking of hotel companies worldwide.

Last year, it sold more than $1.1 billion worth of assets and was to sell more than $500 million in assets during the first half of 2005, analysts said.

"The company will continue to grow by leveraging some assets and asset sales and that is required to develop a number of hotels," Terzi said. "We have some aggressive plans and will continue to develop in San Diego, across the country and the world.

"We're just looking at some of the assets we own and their value and whether this is the appropriate time to sell and maintain management or franchise agreements."

Starwood's second-quarter results, reported July 26, showed that its net income fell to $145 million, or 65 cents a share, from $154 million, or 72 cents a share during the same year-ago quarter. Revenue rose to $1.56 billion from $1.36 billion.

Meanwhile, another prominent Starwood-managed hotel, the 261-room W San Diego in Downtown's Marina District, which was developed in 2002, remains on the market.

Starwood has a minority share in the ownership of the W San Diego, while a group of labor union pension funds represented by Seattle-based Kennedy Associates Real Estate Counsel Inc. is the majority owner.

Aside from the Westin Horton Plaza and the W San Diego, Starwood's local hotel holdings include the Sheraton San Diego Hotel and Marina and the Sheraton Suites San Diego, both in Downtown.

San Diego Hotels Are Appealing

Since the beginning of the year, five significant San Diego hotels have been sold , the 350-room Hilton Mission Valley; the 282-room Hilton San Diego Gaslamp Quarter; the 224-room Courtyard by Marriott on Broadway in Downtown; the 118-room Staybridge Suites on Innovation Drive in Mira Mesa; and the 316-room Holiday Inn Mission Bay SeaWorld in Point Loma.

Aside from the W San Diego and the Westin Horton Plaza, at least three other hotels are on the block in San Diego: the 422-room Hyatt Regency Islandia on Mission Bay; the 206-room Shelter Pointe Hotel in Point Loma; and the 284-room Marriott Del Mar on El Camino Real, having a total estimated worth of at least $360 million.

Last year, the biggest hotel sale in San Diego was the 192-room Residence Inn Mission Valley, which sold for $37.2 million.

Industry analysts attribute the boom in the local hotel market to low long-term interest rates, the increased availability of capital, and strong performance of the assets.

At least one tourism expert said the sales activity should have no bearing on San Diego's tourism rate, which traditionally ranks among the highest in the country.

The fact that more hotels are changing hands "means nothing" in regard to the visitor industry, said Reint Reinders, the president and chief executive officer of the San Diego Convention & Visitors Bureau.

"In the hotel business there are two important things. The real estate is one and the hospitality aspect is another," Reinders said.

"Hotels are owned by people in the real estate business, particularly REIT partnerships (real estate investment trusts), who want to buy low and sell high.

"At the same time, the flags, or the management of the hotel, may change or may not during a sale."

The rate of tourism depends entirely on the strength of a market, not on who is buying and selling hotels, he said.

The fact that San Diego's hotels are producing high revenue rates, on average, is attractive to potential buyers, Reinders said.