Irvine-based R.D. Olson Development is under contract to sell a trio of its recently built hotels here for $103 million to a Virginia-based investor.
The company, California’s most active hotel developer for several years running, recently struck a deal to sell the Tustin Pacific Center, a two-hotel project next to the Costa Mesa (55) Freeway, as well as the Residence Inn by Marriott in San Juan Capistrano.
The three hotels total 424 rooms and are among the first new hotels to open in Orange County since the last recession.
The proposed buyer is Apple REIT Ten Inc., an affiliate of Richmond, Va.-based hotel investor Apple REIT Cos.
Apple REIT Ten has until late January to review the proposed transaction before closing on the properties, according to regulatory filings.
The deal is expected to close in early February, assuming all goes as planned, according to Bob Olson, chief executive of R.D. Olson.
“We develop our hotels to hold them long term,” Olson said. “That said, we thought it was a good time to recycle capital. Cap rates are down, and the hotels we’re selling have performed well.”
The company has four hotels under construction and expects to break ground on another three this year.
The sales to Apple REIT won’t result in any changes to the operation or branding of the three hotels, according to Olson.
The two companies have done business together before.
Apple REIT Ten currently owns 51 hotel properties in the U.S., but only one in California—a 142-room Courtyard by Marriott in Oceanside that it bought from R.D. Olson in 2011 for $30.5 million. That deal worked out to a purchase price of about $215,000 per room.
Another Apple REIT Cos. affiliate paid $80 million for a second Oceanside hotel built by R.D. Olson, along with a hotel in Burbank, in 2008.
The prices agreed on for the latest three deals suggest that pricing remains strong for newer hotel properties.
Residence Inn in SJC
The 130-room Residence Inn in San Juan Capistrano is expected to sell for $29.2 million, or roughly $225,000 per room, according to filings with the Securities and Exchange Commission.
R.D. Olson previously put an estimated $22 million construction cost on the three-story property, which opened in 2012 and is about 91,500 square feet. The hotel is just off the Santa Ana (I-5) Freeway at Stonehill Drive and Camino Capistrano.
Tustin Pacific Center, which opened in 2013, includes a Fairfield Inn & Suites with 145 rooms and a 149-room Residence Inn, both by Marriott.
The expected purchase price for the Fairfield Inn is $31 million, or approximately $214,000 per room, while the Residence Inn is slated to sell for $42.8 million, or $287,000 per room.
Tustin Pacific Center totals about 196,000 square feet and was estimated by R.D. Olson to cost about $60 million to build.
The center was the first new hotel development in Tustin in more than 15 years.
The property includes about 16,000 square feet of retail space that is not being sold, according to Olson.
Busy Backlog
The expected sales should free up some cash for R.D. Olson as it continues an aggressive hotel development push across California and Hawaii.
The privately held developer has built more than 1,000 hotel rooms in the past few years, with those projects’ construction costs topping $200 million.
R.D. Olson Construction, a sister company that has worked on some $2 billion in hospitality construction since its inception in 1979, handles work for the developer.
The developer completed a 210-room Courtyard by Marriott in the Irvine Spectrum last year, and the company is in talks to build another Spectrum hotel nearby this year. It also broke ground last year on Paséa Hotel & Spa, the 250-room hotel component of the long-awaited Pacific City development in Huntington Beach, and is developing that project with Irvine-based Pacific Hospitality Group.
Lido House
R.D. Olson is moving ahead on plans to redevelop the former Newport Beach City Hall site into a 130-room boutique hotel called the Lido House. Groundbreaking for that project should take place this year, Olson said.
Silicon Valley Project
The company also is planning to break ground on a hotel project in the Silicon Valley in 2015. Olson’s construction business has done work for other developers in Northern California, but the Silicon Valley hotel will be its first in the region for R.D. Olson Development.
“We’re actively looking” for more sites in Northern California, Olson said.
He said in 2013 that his company had raised more than $100 million from banks for new hotel construction in the prior two years. It’s gotten another $50 million or so from wealthy investors, primarily former and current athletes.
