Court orders tax refund for Blackstone-owned Westin St. Francis Hotel

Blackstone bought the hotel for $671M, while San Francisco assessor valued property at $785M

The Westin St. Francis hotel in San Francisco was overvalued by tax officials during its 2015 sale, according to a state appeals court ruling. 

The court ordered the city to refund a portion of the property taxes paid by the new owners, BRE Diamond Hotel (a Blackstone subsidiary), but did not specify how much, the San Francisco Chronicle reported.

BRE bought the luxury hotel, with nearly 1,200 rooms in two buildings, for $671 million, prompting a property tax reassessment.

The disagreement centered around the hotel’s valuation, which San Francisco’s assessor said was $785 million. Meanwhile, the owner contended its taxable value was $645 million. 

A significant part of the legal dispute involved $56.9 million in “intangible” assets, such as income from the hotel’s management agreement and fees from guests who left early or did not arrive.

The court determined that income from fees related to early departures or no-show guests properly contributed to the hotel’s value and tax assessment. However, fees from movie rentals and laundry services, while generating revenue, were deemed not integral to the hotel’s overall value and should not be included in property taxes.

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The ruling also questioned whether management fees paid to the new owners should be part of the taxable value. The court concluded that certain fees, associated with the “Westin” name, marketing, training, and services not offered by the previous owners, should be deducted from the taxable value.

This legal battle is part of a larger ongoing disagreement between the hotel’s owners and the city. The hotel owners are currently seeking to reduce the assessed value from $787 million to $76 million, according to recent reports.

The city is considering its next steps, including a potential appeal to the state Supreme Court.

Tax appeals on high-value properties aren’t that unusual, but owners prevailing on them in court can be rare.

Last year, eight San Francisco landlords with properties assessed at more than $100 million sought to have their property tax bills cut in half.

Some of the city’s largest landlords have filed appeals to the city’s Assessment Appeals Board seeking a 50 percent reduction in last year’s taxable assessment, the San Francisco Business Times reported

— Ted Glanzer