S.F. Japantown community meets to discuss future of hotels

San Francisco Japantown community members met at the Japanese Cultural and Community Center of Northern California June 16 in response to the sale of the Hotel Kabuki and the listing of Hotel Tomo by Beverly Hills, Calif.-based 3D Investments. The Japantown Task Force and the JCCCNC invited attendees to discuss their concerns about the sale and review their next steps.

On May 1, 3D and New York-based Blackstone Group closed a deal to purchase Hotel Kabuki for an undisclosed amount. Prior to the sale, several community members met with representatives from the Boca Raton, Fla.-based Prospect Hotel Advisors, an exclusive hotel advisor to Blackstone, regarding Blackstone’s plans for the hotel.

About 100 people attended the meeting. Representatives from the hotels did not attend it. Bob Hamaguchi, executive director of the task force, and Donald Tamaki, an attorney and president of the San Francisco Japantown Foundation, presented information, having met with the new owners.

Ryan Kimura, director of programming at the JCCCNC, started the meeting — one of his last, before leaving the organization at the end of that week — by addressing the importance of the two Japantown hotels.

“The hotels are key properties in Japantown … Under the management of Joie de Vivre, they have continued to have a high occupancy even during the recession,” he said. In estimating the impact the hotels have on the local neighborhood, Kimura estimated a 90 percent occupancy rate among the 343 rooms in the two hotels, with an average of one and a half guests per room. If each guest spent $20 in Japantown, Kimura estimated a financial impact of $3.4 million each year.

“It’s no surprise that Japantown continues to be an attractive space to real estate investors,” he said. “Our hope is that we will continue build on the vision and goals of the JCHESS (the Japantown Cultural Heritage and Economic Sustainability Strategy) to sustain the unique Japanese and Japanese American cultural heritage and promote economic development and keep it attractive to supportive and financially capable owners.”

Hamaguchi outlined his observations of the sale from the April 25 meeting with John Ceriale and Barry Lewin of Prospect. The deal is currently closed, but under a customary 75-day due diligence period where either party can back out of the sale, though Hamaguchi said such an event is unlikely.

Hamaguchi said Ceriale and Lewin have roots in San Francisco and are aware of the importance of community to the city. In a letter Hamaguchi shared with the public, Lewin acknowledged the covenants that Kintetsu Enterprises Co. of America put in place in 2006. The letter also said it would seek community input for the coming renovations.

According to Tamaki, who represented Kintetsu during the 2006 sale, the company made a “highly unusual” move to place covenants onto the Japantown properties it sold to 3D requiring future owners to maintain a Japanese theme and provide support to the Japanese American community for 15 years in exchange for his firm’s representation of Kintetsu. The Japan Center Malls also may not be sold to any other investor for 15 years, though the hotels can change hands.

Hamaguchi said he had heard from multiple sources that Hotel Kabuki is in need of renovations, despite being renovated in 2007 by 3D. Hamaguchi said the “importance of having a Japanese-themed, fresh and modern hotel is very key to the future of Japantown. This Blackstone appears to have the expertise and the financial capacity to do what they say.”

While Blackstone intends to implement improvements to the hotel, its long-term future remains a mystery. Hamaguchi said his meeting with the new owners made it clear that Blackstone intends to sell the hotel after raising its value. “That’s probably a five to seven year period,” said Hamaguchi who previously worked in the real estate and banking industry. “We’d love to see them stick around forever, but don’t expect it.”

Tamaki added that Kintetsu’s involvement with the properties lasted 40 years. Tamaki called it “unusual” for a firm to hold on to a property so long and that the covenants placed by Kintetsu were likely not going to be renewed. “Any restrictions on land devalues it,” he said.
Tamaki said the community and Blackstone should instead work together to create a successful business model that encourages future property owners to maintain the spaces as Japanese-themed hotels even after the covenants expire in seven years. “The buyer said they agree with the covenants,” Tamaki said. “The hope is, after seven years, this will be a business model that has a future so that the next buyer would be encouraged to follow that lead.”

“At this point, it’s very positive that the buyers did the first reach out to community leaders and put their commitments on paper,” Tamaki said.

Karen Kai, who helped work on the JCHESS, asked about the hotel’s management. Currently, Joie de Vivre manages both Hotel Kabuki and Hotel Tomo. Hamaguchi said JDV has been “very good corporate citizens” in the community through their participation in community events, such as cleanups and meetings, and hoped for their continued management, but said he does not know who will ultimately take on the role. “(Blackstone) owns Hilton, Wyndham. They told us they’re extending the JDV agreement to the end of the year while they evaluate who is best suited to operate the hotel. … I hope it’s JDV.”

“I think they have a good track record of designing the hotels designed for the communities they’re in. I hope they recognize that and they’re allowed to negotiate to continue,” he said.

Several community members shared their concerns about Japantown’s long-term plan for dealing with future owners. “Where’s the leverage of the community going to come from?” asked the Rev. Ron Kobata of the Buddhist Church of San Francisco. “We’re just sitting here watching this happen. It’s kind of like a shikataganai (it cannot be helped) situation.”

Hamaguchi said the Japantown community has some leverage, primarily with the seven years remaining on the covenants and the Special Use District that then-District Supervisor Ross Mirkarimi set up.

Tamaki added that the community could block developments and make the development yield to the community. But he added that he hopes for a mutually beneficially relationship instead. “We can block what we don’t want, but we can leave the community in a state of status quo and the march of time will cause change. The community will change, will it be the change that anybody wants?” he asked.

“If the buyer comes in and ignores JCHESS and ignores the community, the community can politically make it a very expensive process.” Tamaki said in closing. “We have a carrot and a stick, … and it’s important to think about how we wield that energy.”

Several attendees called for a long-term plan. “So if these (property owners) plan to buy land to improve it and get out, we’re going to be in the same boat in seven years,” one man said.

Kai agreed to a need for a long-term plan. “What is the JCHESS implementing body going to do?” She asked. “We need someone to start looking at these things in the long term so that we’re not caught flatfooted each time.”

“Communication with 3D has been almost nil,” said Alice Kawahatsu, a Konko Church of San Francisco member. “Being a community is being involved in community input and being active.” Kawahatsu said she hoped their relationship with future owners will be mutually beneficial.

The community members discussed Hotel Tomo briefly at the end of the meeting. Hamaguchi said he had invited 3D to make a statement on the hotel’s listing, but he did not receive a response. “I assume any buyer would assume the same covenants as Blackstone,” he said.

Hotel Tomo is currently listed for sale by Eastdil Secured in San Francisco. Hamaguchi said that no prospective buyers have been identified for Hotel Tomo.

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