S.F.’s First Crowdfunded Hotel? Yotel Asks For Investments

By Carolyn Said
San Francisco Chronicle.

The Yotel hotel being constructed inside San Francisco’s historic Grant Building at 1095 Market St. will have trendy touches like automated check-in kiosks, retractable beds, control panels for lights and temperature, lobby co-working space and ultra-efficient “cabin” rooms.

It has a cutting-edge innovation behind the scenes as well — crowdfunding.

“Because the property is in the heart of Mid-Market, we felt this was a way to get some local tech entrepreneurs interested in and potentially invested in the project,” said Justin Palmer, CEO of Synapse Development Group, which is developing the project with Kuwait’s Aqarat.

The Yotel property, one of several hotels being built in once-blighted Mid-Market, is within blocks of the headquarters of Twitter, Uber, Square and other tech companies.

Synapse says this is the first crowdfunded hotel in San Francisco. Such offerings became legal two years ago, when the federal Jobs Act allowed private companies to publicly advertise to raise funds.

Under SEC rules, the offering is open only to accredited investors — in other words, rich people.

Investors, who must pony up at least $25,000, get an equity stake in the hotel, as well as an array of perks. The first investor to plunk down $250,000 will get a signature drink named after him or her at the hotel’s rooftop bar, to be run by a not-yet-identified Michelin star San Francisco chef. All investors will get VIP status at all Yotel hotels, T-shirts and a small piece of art. Those who invest $100,000 and up get invited to an annual owners party and have custom key cards with limited edition artwork.

The crowdfunding is both an experiment and a marketing tool. Only up to $4 million of the project’s high-$70 million cost is being offered to backers. Most is financed normally through institutional capital.

“What better way to get a truly evangelist user base than by having people actually invest in the hotel?” said Adam Hooper, CEO of Palo Alto’s RealCrowd, the online crowdfunding platform handling the money. “All the investors, anytime someone they know comes to San Francisco, they’ll say, ‘Why don’t you stay at my hotel?’ They’ll be its biggest proponents.”

The crowdfunding started in late August and will wrap up within 30 days. Palmer said it has drawn interest from hundreds of investors, but wouldn’t say how many have actually invested.

Yotel saw crowdfunding as a perfect fit for its “technology-driven luxury experience” brand, said Jason Brown, Yotel chief development officer. “We wanted to be at the forefront of letting individual investors into opportunities that for a very long time were open only to the very select and few.”

So far, New York is Yotel’s only U.S. location, but the company is in major expansion mode, with hotels also being built in Boston, Brooklyn and Miami, as well as London, Paris, Dubai and Singapore, he said. All told, it plans to have 50 properties by 2020, up from just four now.

“San Francisco will be a cultural flagship for us,” Brown said, adding that Yotel is keeping a close eye on how crowdfunding evolves.

“Crowdfunding is about to explode and change how capital-raising happens in the real estate industry,” said Janet Lee, Synapse project manager, as she led a hard-hat tour of the 1904 terra-cotta-and-brick building, which has been gutted, other than a striking stairway with wrought-iron railings.

Chicago hedge fund trader Assad Fehmy and wife Mohy Ali, who works in fashion advertising, are among the crowdfunding investors.

“We thought it would be a really good fit for us,” Fehmy said. “We’ve lived in a lot of different places — London, New York and Chicago — but San Francisco is a place we’re really interested in. It will be cool for us to stay there and see how the Mid-Market area is evolving.”

Ali said they also like the social aspects of being crowdfunders.

“We’re looking forward to the annual owners party,” she said. “It seems like a good way to network with others.”

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