Investors Ink Major Hotel Deals in L.A., Chicago
- May 23, 2011
Deep-pocketed investors are returning to hotels as an investment vehicle, with two more big properties changing hands recently in major U.S. markets. In metro Los Angeles, Hersha Hospitality Trust has acquired the 260-room Marriott Courtyard Westside in Culver City, while in downtown Chicago, Strategic Hotels & Resorts Inc. has struck a deal to acquire the 49 percent interest in the 792-room InterContinental Chicago that the company does not already own.
The uptick in hotel acquisitions is worldwide. In 2010, according to Jones Lang LaSalle Inc., some $24.3 billion in hotel real estate traded hands globally as investors made their way back into the market following a decade-low investment sales volume of less than $10 billion in 2009. Moreover, JLL predicts that global transaction volumes are expected to rise another 15 to 25 percent this year compared with 2010, perhaps reaching as much as $30 billion globally.
Hersha, a specialist in upscale and mid-price hotels in major metro markets, is paying $47.5 million, or $182,500 per key, for the Culver City property. The hotel was completely renovated and reopened as the Courtyard Westside in 2008 and includes about 11,000 square feet of meeting space.
This is Hersha’s first foray into the Los Angeles market. Near the junction of I-405 and I-10, the Culver City area includes concentrations of office space, retail, entertainment venues and production studios. According to Hersha, the metro L.A. hotel market has enjoyed strong fundamentals lately, with 15 percent year-over-year growth in revenue per available room (RevPAR) year-to-date through April. Since 1995, Los Angeles has seen the second-highest RevPAR growth in the country, behind only New York.
The Chicago deal involves Strategic Hotels & Resorts buying out a joint-venture partner, an affiliate of the Government of Singapore Investment Corp., for the full ownership of the property. The Chicago-based REIT paid for the 49 percent interest in the property with common stock totaling 10.8 million shares at an agreed-upon issuance price of $6.50 per share, plus $11.8 million in cash. The transaction values the hotel at $288.3 million, or $364,000 per key.
The InterContinental Chicago, located in the North Michigan Avenue shopping district, is a 1920s-vintage luxury hotel consisting of two towers, the 42-story historic tower and the 26-story main tower, and features 42,000 square feet of function space, including six ballrooms and 30 meeting rooms. The hotel also features an Eno wine tasting room and will feature a new Michael Jordan-themed steakhouse later this year.
According to Laurence Geller, CEO of Strategic Hotels & Resorts, his company believes the hotel is poised “to meet and possibly surpass previous peak performance levels.” One reason is that as Chicago recovers from the recession, there will nevertheless be no new competition in the InterContinential’s immediate vicinity–the barriers to entry are simply too high on that part of Michigan Avenue.