Craig Schafer has money burning a hole is his pocket.
He wants to buy several 100- to 200-room well-located downtown Seattle hotels with potential. He’s in the market for properties such as the Claremont Hotel at 2000 Fourth Ave., which he purchased in 2002 and repositioned from a one-star venue to the award-winning boutique Hotel Andra.
He’s looking for hotels with good bones that need a little rearranging. He’ll also consider older office buildings that can be renovated into hotels.
Once he gets the properties, he’ll re-engineer the management — in the case of the hotels — and find good restaurant tenants, such as Lola, Tom Douglas’ restaurant and bar in Hotel Andra. Douglas also provides room service, catering and banquet service for the hotel’s guests.
Strong Seattle market
Schafer said his problem is this: There’s no hotels of the size he wants for sale in the hot downtown Seattle market. But he expects valuations to fall. Higher financing rates have brought about a slight correction, which he predicts will get larger.
Seattle hotel occupancy is well above the national average, said Schafer. The Emerald City is among five metropolitan areas in the country that’s been able to raise room rates by double digits in each of the last three years, he said.
But he anticipates single-digit increases in 2008. This is because of the growing resistance to rate increases from larger regional and national conventions and added rooms from hotel-condo projects that have come on line and will in 2008 and 2009.
“You get close to start pricing yourself out of the market at some point,” he said.
Buying distressed hotels
Schafer has been tracking the hotel market for years. The Tacoma native started his career in Westin Hotels’ management training program after earning a degree in hotel and restaurant administration from Washington State University. He received an MBA from the University of Puget Sound in 1980 and worked as a consultant for hotel property developers for five years after that. He founded Colliers International Hotel Realty in 1985 and ran it as president for 15 years.
In 1992, he and Alan Battersby started buying distressed hotels in secondary markets, such as Lynnwood, Olympia and Marysville, repositioning them and then selling.
The pair also purchased the 158-room Edmond Meany Tower Hotel in the University District in 2000, following the stock market decline. They repositioned the property and renamed it University Tower Hotel, which they sold in 2004 for $26 million to an affiliate of LaSalle Hotel Properties, Schafer said.
“I like to buy or do things when the market is down,” Schafer said. “It’s more fun ... even though I never buy anything else on sale.”
Seattle hoteliers have benefited from limited supply, said Schafer. No new free-standing hotels have been built downtown since the Hyatt, which opened right before the Sept. 11, 2001, terrorist attacks, and the condo-hotel projects downtown tend to have fewer rooms than traditional hotels, he said.
Moving into Portland
Schafer expects that eventually the malaise in some other condo markets nationally will overtake Seattle, where the economy tends to lag the rest of the country. Consequently, fewer condo-hotels will be built, he said.
While waiting to buy downtown, Schafer hasn’t been sitting still. He and Battersby, who Schafer worked with at Colliers, have purchased the 180-room Portland Inn in downtown Portland from Starwood.
The hotel built in the early 1960s has a mid-century modern look, “so we’re sort of going with that” as it’s popular now, said Schafer. It has “some awful looking awnings” and a fake mansard roof, but when renovated will be sleek and elegant, he said. The pair intends to hold the property longer term.
Schafer said the Portland market is attractive, given the strong economy and limited number of hotel rooms. Room rates are lower there than in downtown Seattle, so consequently Portland can’t support new construction, he said.
Additionally, Schafer said, no condo-hotels are going into Portland near term as the market isn’t deep enough to support the million-dollar-plus condos usually associated with such projects.
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