SAN FRANCISCO— For HEI Hospitality, acquiring the Park Hyatt here last month was a milestone because it marked the Norwalk, CT-based owner/operator’s entry into this high-barrier-to-entry gateway city. HEI quickly announced plans to rebrand the 360-room hotel as a Le Méridien, which made the acquisition/ conversion an even more propitious event for Starwood Hotels & Resorts Worldwide. Starwood acquired the Le Méridien brand in late-November and has been eager to begin to expand its U.S. distribution. With roughly 90 hotels in Europe and 30 in Asia, Le Meridien is well-represented in those markets. After a number of defections under its previous leadership, however, Le Meridien was woefully under-represented in the key North American market with hotels only in New York, Toronto, Beverly Hills, and Palm Springs. Consequently, having a flag in high-visibility San Francisco is something of a coup. HEI acquired the hotel, which opened in 1989, from SHC Park San Francisco, LLC, a subsidiary of Strategic Hotel Capital, LLC. Strategic’s principal shareholders are affiliates of Goldman, Sachs & Co. and Prudential Real Estate Investors. None of the parties disclosed a sale price, but local sources said it was $126 million or $350,000 per key. HEI completed raising its second investment fund, valued at $425 million, in February, which will allow the firm to invest up to $1.5 billion in hospitality assets over the next three years. The Park Hyatt was the first investment from that fund. HEI will manage the property under its Merritt Hospitality subsidiary. “Not only is San Francisco a key international city, but it’s the financial hub for the West Coast and the hotel is located right in the midst of that activity,” said Jin (correct spelling) Lee, HEI senior vp for acquisitions and development. “Yet as a hotel market, we feel San Francisco is still in the early stages of the rebound, so we should be able to benefit from significantly more growth.” San Francisco also has the advantage of appealing to different customer segments. “It’s a destination that enjoys a diversified demand base, both business and leisure travel, individual and group,” he explained. HEI spent considerable time weighing possible conversion candidates. “We already have a strong relationship with Starwood, which certainly helped,” Lee said, noting that Westin and Sheraton are already represented in the portfolio. Given Starwood’s size, the hotel would benefit from the parent’s central reservations system, its global sales force, and, last but not least, the scale of its Starwood Preferred Guest frequency program. Lee said Starwood was considering giving elite members of Hyatt’s Gold Passport program—and the hotel’s most loyal guests—equivalent status in SPG. Le Meridien and San Francisco also seemed a good fit. “Le Meridien as a brand has such international connotations while San Francisco, of all U.S. cities, is probably the most international in feel.” In addition, the hotel will be the only Le Meridien in the city. “Considering there were three Hyatt hotels in San Francisco, each with Hyatt in its name, there seemed to be some customer confusion as to Park Hyatt’s point of differentiation. That will no longer be the case,” he said. But Lee credited Global Hyatt Corp. with operating a well-built and well-maintained asset. “It’s a high-quality facility with excellent finishes that are timeless,” he said, singling out the size of the guestrooms, large number of suites, and four-fixture bathrooms for special mention. Nonetheless, HEI plans a $10 million renovation that will start in late-2007 to enhance the property further. From the Starwood/Le Meridien perspective, having a San Francisco flag was “an excellent opportunity to start rebuilding our presence in North America,” according to Michael Wale, Le Meridien senior vp. The process of integrating Starwood’s systems, including SPG, was completed in mid-March. “On the one hand, we’re able to benefit fr
