To: The City of South San Francisco
From: Ensemble Investments, LLC
Date: March 12, 20225
Background: In April of 2018, Ensemble Investments, LLC (“Ensemble”) was awarded the rights to develop a full-service hotel on a vacant, 4.7-acre site located at 367 Marina Boulevard. In December 2021, Ensemble entered into a Purchase and Sale Agreement (PSA) with the City for the site, which initially set the Closing Date for December 31, 2022. The Closing Date was subsequently extended via two amendments to the PSA, the second of which extended the Closing Date to July 15, 2025.
Ensemble remains deeply committed to the opportunity and firmly believes that this project will be a transformative addition to the area and an economic engine for the city. Ensemble is an active hotel owner, developer and operator with projects located throughout the Bay Area. We continue to be believers in the region’s recovery and are actively investing in its future.
While we remain optimistic, we have faced a series of deteriorating economic conditions since 2018 that have made new hotel development increasingly infeasible, as detailed below and evidenced in the attached analysis:
Economic Challenges Impacting Feasibility
Decline in Revenue Performance: According to data from CoStar’s San Francisco Airport Hospitality Submarket, trailing twelve-month RevPAR has decreased by approximately
22.1% since Q1 2018. This decline reflects persistent challenges in demand recovery, exacerbated by shifts in corporate travel and macroeconomic uncertainties. Rising Construction Costs: The Producer Price Index (PPI) for new nonresidential building construction in the Western U.S. has increased by 63.4% since Q1 2018 (U.S. Bureau of Labor Statistics). These cost escalations have significantly impacted project pro formas, making financing and execution more challenging.
Escalation of Hospitality Labor Costs: Total compensation for private industry workers in the leisure and hospitality sector has risen by 35.1% over the same period (U.S. Bureau of Labor Statistics). Increased labor costs further compress project viability, affecting both initial development budgets and long-term operational profitability. Increased Financing Costs Due to Rising Interest Rates: The Secured Overnight Financing Rate (SOFR) has risen from 1.80% in April 2018 to 4.33% as of February 14, 2025. This increase of 2.53 percentage points has led to higher borrowing costs, affecting the financial feasibility of new developments and greatly limiting capital availability for new construction.
Given the economic headwinds outlined above, Ensemble respectfully requests an extension of the Closing Date of the Purchase and Sale Agreement by two years, moving the current deadline from July 15, 2025, to July 15, 2027. This extension is critical to allowing the necessary time for financial markets to stabilize and for project feasibility to align with economic realities.
An extension of the closing timeframe in the PSA will allow time for:
Market Stabilization: A more favorable demand environment will support financial feasibility and ensure the project meets its intended objectives. Financial Optimization: Adjustments to capital structuring and financing to accommodate increased costs.
Labor Market Adjustments: A more predictable employment and wage environment will improve operational planning.
Ensemble remains committed to delivering a high-quality hospitality asset that enhances Oyster Point and contributes to the economic vitality of South San Francisco. We appreciate the City’s consideration of this request and look forward to discussing a path forward.
Sincerely,
Conrad Garner
Oyster Point Hotel Economic Feasibility Analysis
INDEX - Construction Costs PPI vs. Hospitality Labor ECI vs. T-12 RevPAR * Source: US Bureau of Labor Statistics - PPI industry data for New nonresidential building construction by contractor type/region-General contractors, West, not seasonally adjusted ** Source: US Bureau of Labor Statistics - Total compensation for private industry workers in the leisure and hospitality industry, current dollar index *** Source: Costar San Francisco Airport Hospitality Submarket NET % CHANGE (Q1 2018 BASELINE) - Construction Costs PPI vs. Hospitality Labor ECI vs. T-12 RevPAR * Source: US Bureau of Labor Statistics - PPI industry data for New nonresidential building construction by contractor type/region-General contractors, West, not seasonally adjusted ** Source: US Bureau of Labor Statistics - Total compensation for private industry workers in the leisure and hospitality industry, current dollar index *** Source: Costar San Francisco Airport Hospitality Submarket 149.1
161.2
38.2 116.2
132.6
179.2
110.0
179.8
0.0 20.0
40.0 60.0
80.0 100.0
120.0
140.0
160.0
180.0
200.0
Q1
2018
Q2
2018
Q3
2018
Q4
2018
Q1
2019
Q2
2019
Q3
2019
Q4
2019
Q1
2020
Q2
2020
Q3
2020
Q4
2020
Q1
2021
Q2
2021
Q3
2021
Q4
2021
Q1
2022
Q2
2022
Q3
2022
Q4
2022
Q1
2023
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2023
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2023
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2023
Q1
2024
Q2
2024
Q3
2024
Q4
2024
Construction Costs PPI* Hospitality Labor ECI** T-12 RevPAR $***
63.4%
35.1%
-22.1%
-100.0%
-80.0%
-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
Q1 2018Q2 2018Q3 2018Q4 2018Q1 2019Q2 2019Q3 2019Q4 2019Q1 2020Q2 2020Q3 2020Q4 2020Q1 2021Q2 2021Q3 2021Q4 2021Q1 2022Q2 2022Q3 2022Q4 2022Q1 2023Q2 2023Q3 2023Q4 2023Q1 2024Q2 2024Q3 2024Q4 2024 Construction Costs Net % change* Hospitality Labor Net % change** T-12 RevPAR Net % change***