Owners of SF’s Fairmont Hotel Push to Go Half-Condo

San Francisco–The 591 rooms at the iconic Fairmont Hotel in San Francisco have not been pulling in the guests the way they used to, and its owners are eager to tap into what they describe as an underserved market on Nob Hill–large luxury condominiums.

In 1907, carrying a development price tag of $5 million, the Fairmont opened its doors to its first guests. The property has since undergone a series of improvements to help it maintain its renowned splendor. An expansion program yielded a new 24-story tower with 226 rooms in 1961, and owners invested $85 million in a massive renovation project in 2001.

Despite its glory, times have changed and the Fairmount is not the hotel hotspot it once was. Now its current owners, a 50/50 partnership involving Saudi Arabia’s Kingdom Hotel Investment Group and a U.S.-based group led by SPO Partners & Co., are eager to move forward with a business plan that will make the property more relevant in the current environment.

“What’s happened in San Francisco is that the market for the hotel business has moved; it’s not on Nob Hill,” Chuck Finnie, with BMWL & Partners, the public affairs consulting firm representing Fairmont’s owners, tells MHN. “The big growth in San Francisco has been in the South of Market area. Several cultural institutions were built there, the convention center is there, and a lot of great restaurants and retail shops are starting to open there. Nob Hill just doesn’t have the demand to support its hotel rooms, so Fairmont’s owners have devised a way to adapt.”

That adaptation would involve the razing of the 24-story tower, which would not impact the property’s designation as a San Francisco Landmark, to make room for a new tower that would house 160 residences. “What’s not being served in the condo market is the demand for a larger floorplate, the three- and four-bedroom floor plans that can accommodate families,” he explains. “You just don’t find that in San Francisco condos. And the nature of the whole package with five-star amenities will be a one-of-a-kind opportunity. We are quite confident that the condos will do quite well.”

As the owners envision it, Fairmont as a luxury lodging and residential destination will be a win-win situation for both the hotel and residential markets in San Francisco. The new residential tower will be designed to complement the property’s historic structure, which will be submitted to an internal upgrade program. “There will be a number of changes in the event space. There will be a new resort spa and new restaurants. All of the food and beverage options and event space will be five-star. The project will take the Fairmont back to its roots as a smaller, more intimate hotel for discriminating guests. And it will be on the leading edge of the revitalization of Nob Hill as a top residential neighborhood.”

Many, but not all, have warmly embraced the Fairmont transformation concept. There are concerns about the hotel employees, but the owners have a plan to allay those fears. “An important part of our proposal is that every worker will have a job after the new project,” Finnie says. “And any loss of wages during its execution will be replaced through a stabilization fund. Also, after the project is completed, there will be a new profit-sharing benefit. When the deal gets done, the Fairmont will have a worker protection package that will be second to none.”

In addition to battling detractors, the Fairmont’s owners have had to contend with a bit of a city government snafu. San Francisco Mayor Edwin Lee is making an effort to rectify the issue. Earlier this month, he introduced legislation that would allow for an ordinance amending a relevant city code to facilitate the extension of “the deadline for Planning Commission approval of applications for conversion of large tourist hotels to condominium projects, subject to completion of project-specific milestones by November 1, 2010, and making required findings.” The owners of the Fairmont missed a milestone through no fault of their own. The proposed legislation has been assigned to the Board of Supervisors’ Land Use and Economic Development Committee.