San Diego Business Journal

The way analysts view the lodging industry, the pending sale of the Hilton Garden Inn San Diego fits the description of highly sought after properties: a midpriced, limited service inn that caters to business travelers, sports a top-rated flag and is located in one of the hottest hotel markets in the country.

The upscale 200-room property on Bernardo Center Drive off Interstate 15, near the Rancho Bernardo Industrial Park, is under contract for sale for $34.5 million to Apple Suites, an affiliate of the Richmond, Va.-based Apple Six Real Estate Investment Trust, according to the online real estate newsletter Commercial Real Estate Direct.

If the transaction is completed, the Hilton Garden Inn San Diego will be the first major hotel to sell in the county this year. It's also the fourth Hilton property to sell in the last 16 months.

Neither the seller, Bernardo Ventures, which includes Drake Leddy of Presidian Development of San Antonio, nor the buyer could be reached for comment. According to its Web site, Apple Suites, headed by Glade M. Knight, owns some 64 hotels across the country.

The Hilton Garden Inn San Diego, which has 2,832 square feet of meeting space, opened in 2004. Typical of a business-focused hotel, guest rooms feature work desks, two phones, voice mail features and data ports. Complimentary high-speed Internet access is also available to hotel guests. To keep the weary traveler fit, there's a pool and an exercise room.

The property is near such multinational corporations as Sony Corp., Hewlett-Packard Co., Nokia, Seimens, Northrop Grumman, NCR and BAE Systems. The management of the hotel declined to comment for this story.

In its April edition, Entrepreneur magazine announced its 10th annual Business Travel Awards, naming the Hilton Garden Inn brand, which is part of the Beverly Hills-based Hilton Hotels Corp., the "best mid-priced hotel value."

Alan Reay, an analyst and broker who owns the Costa Mesa-based Atlas Hospitality Group, said that limited service hotels, such as the Hilton Garden Inn brand, are "definitely a sweet spot for REIT acquisitions."

REITs, meanwhile, are among real estate investment groups looking favorably on hotels during the nation's tourism boom that began a couple of years ago. Before that, analysts say, hotel acquisitions were considered higher risk, prompting investors to look for a higher rate of return than they would if they bought an office building.

Hotels, which rely on travelers to fill their rooms, can't project an annual revenue stream as easily as office buildings, which calculate tenant leases to determine revenues. However, the purse strings controlling commercial property lending began to loosen for hotel purchases and development when the tourism industry started to rebound in late 2004 following its steep decline in the wake of the Sept. 11, 2001, terrorist attacks.

The county, considered a drive-to destination from such cities as Los Angeles, Las Vegas and Phoenix, meanwhile, did not see the steep declines in occupancy rates that those in San Francisco, Honolulu and other international destinations did.

A 2005 year-end survey of California hotel sales published by Atlas Hospitality Group this month listed three Hiltons among the highest dollar volume sellers in San Diego County. The 357-room Hilton Mission Bay sold for $90.3 million. The 282-room Hilton San Diego Gaslamp Quarter sold for $85 million; and the Hilton Mission Valley sold for $46 million.

Only the historic 678-room Hotel del Coronado, which was recapitalized after one owner sold a majority share of the property in 2005, went for more , $745 million.

The county currently counts 22 Hilton branded properties. Hilton manages or has a minimum ownership interest in six of them, while the rest are franchised. The brand lineup includes DoubleTree, Embassy Suites, Homewood Suites by Hilton and Hampton Inn. Hilton Corp. will manage and own a minority share of the 1,190-room Hilton San Diego Convention Center Hotel under construction on the city's waterfront.

According to the Atlas Hospitality survey, San Diego tallied 36 hotel transactions last year, with a total dollar volume of $1.284 billion, the highest of any county in the state.

Reay said he expects that the total number of hotels selling within the county this year will be on par with 2005. Yet he expects the dollar volume will be less, because fewer major properties will go on the block.

"San Diego is still one of the hottest markets in the country," Reay added.