element by Westin Mission Valley
Driftwood Development Partners (“DDP”) is pleased to present to accredited investors the opportunity to invest in the development of the element Mission Valley, an upscale extended-stay hotel (the “Project” or the “Hotel”). Upon its completion, DDP believes the Hotel is poised to become the premier choice of extended stay hotels in its market, which is one of the top travel destinations in the country.2 The comprehensive development plan for the 1.5-acre site encompasses 148 suite-style rooms, more than 5,000 square feet of versatile meeting and event space, a stylish lobby bar and lounge, the Rise Dining restaurant, and a seamless connection to the expansive resort-style amenities offered by the affiliate-owned and operated Marriott Mission Valley located next door. With its strategic positioning in San Diego’s Mission Valley neighborhood, the Hotel is expected to benefit from 7-day-per-week diverse demand drivers, no projected new extended stay hotel developments, direct connectivity to downtown San Diego, high barriers to entry and outstanding historical hospitality market metrics achieving over 90% occupancy.3
2Conde Nast Traveler
2STR
Target Net IRR1
Target Net Equity Multiple1
Minimum Investment
Assumed Hold Period1
Deal Overview
DDP believes that the following characteristics of this investment opportunity may lead to a risk mitigated, development opportunity.
“7-day-a-week” demand drivers
Known for its “7-day-a-week” appeal, Mission Valley consistently attracts demand from business and corporate groups during the weekdays and leisure demand on weekends. DDP’s affiliates have seen this firsthand with the ownership and operations of Marriott Mission Valley, which has resulted in what we believe to be consistent occupancy throughout the year.
High barriers to entry
Developing a hotel in Mission Valley poses significant challenges due to zoning regulations, entitlements, and the need for community approval. Complicating matters further is California’s housing shortage, which has prompted local municipalities to prioritize residential development, thus limiting the development potential of land not currently zoned for housing. Additionally, we believe most of the land in Mission Valley is either already developed or characterized by topographical challenges, rendering new developments economically challenging to build.
Shared operations and amenities
By leveraging on operational synergies with the Marriott Mission Valley and utilizing existing key personnel to operate both hotels, DDP expects to significantly reduce its operational expenses. The Project is also expected to gain a competitive advantage by offering the Marriott Mission Valley’s amenities, which we believe will position the Hotel as one of the top hotels in the competitive set and achieve cost savings in both amenity and parking construction expenses.
Robust market performance
Prior to COVID, the competitive set averaged more than 90% occupancy indicating significant demand for the area (STR). More recently, in Q3 of 2023 San Diego was ranked second in top performing lodging markets in the country (Kalibri Labs). Looking forward, the Urban Land Institute ranked San Diego #6 in the top real estate markets to invest in due to the future runway for market growth.
No new supply and reduction in supply
According to Build Central, there are no new extended-stay hotels in Mission Valley in planning or in construction. As a result, DDP projects there will be no direct “new” competition to the Hotel once it is completed. Additionally, the San Diego Housing Commission has been working diligently to purchase extended-stay hotels around the Mission Valley area to convert them into permanent affordable housing (Axios). This concept was utilized in 2020 through the purchase of the Residence Inn Mission Valley for a record-setting $67 million, which removed 192 extended-stay rooms from the market (HNR Hotel News).
Property Overview
Address:
8757 Rio San Diego Dr., San Diego, CA 92108
Projected Opening Date:
2025
Keys:
148 Suite-style
Brand:
Marriott
Management:
Driftwood Hospitality Management
Area:
1.5 Acres
Lease:
99 years with 99 years extension @ $1/year lease payment
Amenities:
Rise dining restaurant & bar; Fitness facility; Sundry shop; Lobby lounge; Outdoor fire pit terrace; Resort-style pool & cabanas; DEN restaurant & bar; Convenience store;
Meeting Space:
37,000+ SF
Investment Rationale
Leisure demand
San Diego is world renowned for its idyllic climate, 70 miles of pristine beaches and a dazzling array of world-class family attractions. Significant local amenities to the Project include the 1.5 million SF Westfield Mission Valley Mall and Fashion Valley Mall, and SDCCU Stadium. The Project is also proximate to both San Diego State University and the University of San Diego. Being walking distance to the Green Line Trolley allows easy access to the area’s leading attractions, including downtown San Diego, Old Town, the Gaslamp Quarter, the San Diego Convention Center, SeaWorld, the San Diego Zoo, and Balboa Park. Once built, the Hotel is expected to directly benefit from these attractions and the ~28 million tourists that visit the area each year (Tourism Council of San Diego) .
Business Demand & M.I.C.E. Demand
Mission Valley benefits from a 7.2 million SF office market (CoStar) with a diverse employment base highlighted by a collection of prominent high-tech, engineering, defense, government, and financial services tenants. DDP believes the Hotel will capture significant business demand throughout the investment hold period. Some of the companies currently in the area include Booz Allen Hamilton, Liberty Mutual, General Dynamics, Hyundai Translead, Prudential, Scripps, Accenture, the Department of Veteran Affairs, Optum, SDCERA, and Bank of America. The Hotel also has the ability to capture demand from downtown San Diego, the third-largest meeting and convention market in the country (Statista).
M.I.C.E. – Meetings, Incentives, Conferences, Exhibitions/Events
Frequently Asked Questions
Who is Driftwood Capital?
Driftwood Capital is an innovative investment business that we believe is built on the solid foundation of a most trusted name in hospitality. We’ve created a hospitality ecosystem to help make smart investments secured by sponsor capital. As professionals well-versed in acquisitions, development, and lending, we source, underwrite, structure, and close investments across diverse markets and asset types, from name brands to boutique properties. We then bring our extensive experience in hotel management to each investment, seeking to add value and improve operations to deliver superior risk-adjusted returns in hospitality.
How does Driftwood Capital differentiate itself from other hotel owners, operators, and developers?
- Aligned Interests: We are invested in each deal alongside our investors.
- Institutional Quality: We provide accredited investors access to investment opportunities traditionally reserved for institutional investors.
- Above-Market Returns: Investors typically receive any quarterly distributions from day one, with annual returns historically between 7% and 10% and 15%+ XIRR.
- Personalized Portfolio: Investors create their own investment portfolio by selecting the deals that appeal to them.
Is there an investment minimum?
Yes, generally, the minimum investment is $50,000 USD, although the amount could vary from deal to deal.
How often are distributions paid?
Any distributions are expected to be paid from operating cash flow at the project GP’s discretion, generally 30 days after the quarter closes.
How does Driftwood Capital’s business model work?
Driftwood Capital purchases cash-flowing hotels, land for development, or funds loans before syndicating to accredited investors. In the case of acquisitions, Driftwood Capital generally engages its affiliated management company, Driftwood Hospitality Management, to help streamline operations and improve performance. The company typically maintains an ownership stake in each deal. Based on historical performance, investors are expected to receive 7-10% annual returns and an XIRR above 15%.
How does Driftwood Capital update investors about their investments?
A fundamental pillar of Driftwood Capital’s value proposition and success is an experienced Investor Relations team that seeks to deliver timely, accurate, and transparent information to all investors. Our dedicated, in-house Investor Relations team is available to address current or potential investors’ questions or concerns. Additionally, investors are expected to receive quarterly reports on individual hotels’ operating and financial performance issued 30 days after the quarter closes. Finally, Driftwood Capital’s Investor Portal — investors.driftwoodcapital.com — further differentiates us from commercial real estate peers and provides investors 24/7 access to their investment anywhere in the world via secure technology. The portal also houses encrypted access to open investments and tax documents.
What tax documents does Driftwood Capital provide?
We typically provide all investors with a Schedule K-1 for their respective investment in any Driftwood-sponsored investment. Schedule K-1 is an Internal Revenue Service (IRS) tax form issued annually that reports each partner’s share of a partnership’s earnings, losses, deductions, and credits.
What documents are required to invest with Driftwood Capital?
Driftwood Capital requires the following documentation for compliance purposes:
Investing as an individual with one subscriber
- Valid, unexpired government-issued ID
- IRS Form W-9
- Valid investor accreditation letter
- Completed and executed the Subscription Agreement
Investing as an individual with more than one subscriber
- Valid, unexpired government-issued ID
- IRS Form W-9
- Valid investor accreditation letter
- Completed and executed subscription agreement by both investors
- Given more than one subscriber, the investors MUST SELECT one of the following within the Subscription Agreement:
- Tenants in common
- Joint tenants with rights of survivorship
- Tenants by the entireties
Investing via Entity (LP, LLC, C-Corp, or SD IRA)
- Valid, unexpired government-issued ID
- IRS Form W-9
- Valid investor accreditation letter
- Entity’s Articles of Incorporation and Operating Agreement (not necessary if investing via SD IRA)
- Completed and executed the Subscription Agreement
Investing via Trust
- Valid, unexpired government-issued ID
- IRS Form W-9
- Valid investor accreditation letter
- Trust agreement
- Completed and executed the Subscription Agreement
What is an accredited investor?
In the United States, to be considered an accredited investor, individuals must have a net worth of at least $1,000,000, excluding the value of their primary residence or have a household income of at least $200,000 each year for the last two years (or $300,000 combined income with your spouse or spousal equivalent) and have the expectation to make the same amount this year. The term “accredited investor” is further defined in Rule 501 of Regulation D of the U.S. Securities and Exchange Commission.
Why do I need to prove I’m an accredited investor?
Deals offered by Driftwood Capital or any of its affiliated funds are typically offered pursuant to SEC exemptions from public registration which require that we verify an investor’s accreditation.
How do I prove I am accredited?
In order to provide Accredited Investor status, you can provide financial statements from a bank/brokerage account showing net assets over $1 million dollars; 2 years of Federal tax Returns or a valid investor accreditation letter from a CPA or an attorney. An alternative would be to visit one of the third-party sites listed below and provide Driftwood Capital with an accreditation letter:
https://www.verifyinvestor.com/
https://www.earlyiq.com/investor-verification
* Driftwood does not accept self-certification of investor accreditation.
What is an investor accreditation verification letter?
An Accredited Investor Verification Letter is a legal document provided by a qualified accountant, investment advisor, or lawyer who can certify your accreditation. The verification letter is valid for up to 3 months from the date it is executed.
Why invest in hotels instead of other asset class?
Hotels are the most desirable asset class in this cycle
Inflation Impact
- Historically, hotel NOI growth has outpaced inflation by a substantial margin. Source: FRED, CBRE Trends in the Hotel Industry
- Hotel NOI recorded a CAGR of 5.5% in the ~50 years from 1970 to 2019, with inflation recording a 3.9% CAGR. This 155bp annual premium – a 41% differential – strongly illuminates the merits of investing in lodging as an inflation hedge over the past five decades. (Source: FRED, CBRE Trends in the Hotel Industry)
- The current economic cycle is beginning to show similarities with previous inflationary cycles. If lodging performance follows the pattern set in past periods, hotel investors can expect outsized returns as compared to an average annual inflation rate of 3.96%. (Source: FRED, CBRE Trends in the Hotel Industry)
Tax Impact
Investing in hotels provides numerous tax benefits as well, including depreciation, tax-deferred cash-out refinancing and qualified business income deductions (“QBI”). This applies to all real estate investments but hotels as an asset class have historically had more favorable QBI and typically benefit from accelerated depreciation, all of which can serve to defer recognition of taxable income. (Source: IRS)
Driftwood Capital is an innovative investment business that we believe is built on the solid foundation of a most trusted name in hospitality.
We’ve created a hospitality ecosystem to help make smart investments secured by sponsor capital. As professionals well versed in acquisitions, development and lending, we source, underwrite, structure and close investments across diverse markets and asset types, from name brands to boutique properties. We then bring our extensive experience in hotel management to each investment, seeking to add value and improve operations to deliver superior risk-adjusted returns in hospitality.
Learn MoreLegal disclosure
This website is not an offer to sell or the solicitation of an offer to purchase securities. All information available in this website is general in nature, not directed to any particular person, and is for informational purposes only. This website excludes material information, including, but not limited to, risk factors to be considered by prospective investors. The information contained herein reflects the opinions and projections of Driftwood Development Partners, LP (“DDP”) as of the date of this website, which are subject to change without notice at any time. There is no obligation to update, modify, or amend the information herein or otherwise notify a recipient of these materials in the event that any information contained herein, or any opinion, projection, forecast, or estimate, changes or subsequently becomes inaccurate. The information provided herein is believed to be reliable and has been obtained from sources DDP believes are reliable, but no representation or warranty is made, express or implied, with respect to the fairness, correctness, accuracy, reasonableness, or completeness of the information and opinions. Neither DDP nor any of its affiliates, representatives, or executives represents that the information contained in this website is accurate, current, or complete. DDP does not represent that any opinion or projection will be realized. For the avoidance of doubt, no investment advice is being provided through this website by DDP or any of its affiliates (including Driftwood Advisors, LLC), representatives, or executives. Each recipient of this website should make such investigation as it deems necessary to arrive at an independent evaluation of the contents hereof and should consult its own legal, financial, and accounting advisors to determine the merits and risks of such an investment.
1 In reviewing these projections and projections set forth elsewhere herein, prospective investors are cautioned that no assurance can be given that actual returns will meet or exceed the targeted returns (including that they may be materially lower than the targeted returns) or that actual results will otherwise meet DDP’s expectations or objectives. In addition, notwithstanding the targeted hold period, DDP is not required to sell the Hotel or any portion thereof at any time and the decision of whether and when to sell the Hotel or any portion thereof will be made by DDP, in its sole discretion, based on market conditions, the performance of the Hotel and other factors which it may consider. Accordingly, the Hotel may be sold, in whole or in part, sooner than expected, or the Hotel or any portion thereof may be held for longer than the target hold period. Please refer to the offering materials relating to an investment in the Hotel, including the “Legal Disclosures” set forth therein, for additional material information.
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