Hersha Hospitality Trust sold their downtown Courtyard San Diego Hotel to Pimco for $64.5 million to Pimco, a Newport Beach global investment management firm that did not previously own any hotels in the state of California. While an exchange for real estate for money isn’t normally newsworthy, the 245 room hotel sold for $6.5 million less than what Hersha purchased it for in 2013.
While this discount may seem shocking to most, President of Atlas Hospitality Group Alan Reay was not at all surprised. According to Reay, the perfectly placed business hotel would have sold for $84 million if it had not been for the pandemic. Pimco was able to purchase the hotel at $64.5 million, nearly $20 million less than what it would have been worth.
The pandemic took a heavy toll on downtown San Diego real estate values in the hospitality industry. While restrictions are beginning to ease and life’s beginning to open up, this specific hotel is less attractive to tourists who may prefer a beachside view. Therefore, the time it would have taken Hersha to bounce back from losses accumulated through the pandemic would have been longer than other properties in the area.
Hersha sold their hotel at a 24 percent discount. According to Reay, hotel properties were discounted between 40 and 50 percent during the middle of 2020. Earlier this year, Hersha was forced to walk away from seven of their New York City hotel properties. Reay suspects that Hersha was motivated to sell in order to free up capital, and notes that they own no debt on the property.
Whether or not Pimco made a wise investment is left to be seen. The 1920s building was originally the San Diego Trust & Savings Bank before it was converted into a hotel in 1999. The hotel has maintained some of the bank’s original features while transforming them and making them applicable to the hotel industry.