In the past few months, CMI has focused on multi-billion-dollar deals in various commercial real estate sectors. The Vornado Realty Trust/Equity Office Properties Trust transaction, for instance, was poised to shatter real estate market records, but a bidding war ensued. (Incidentally, Vornado stepped away from the deal last week, enabling Blackstone Group to shell out a reported $39 billion for the behemoth office landlord.)
Â Â Â In last month's CMI "E-Feature," we examined the Holiday Retirement/Fortress Investment Group acquisition agreement, which represents a $6 billion+ seniors housing deal – a record transaction in the sector at a record-low cap rate.
Â Â Â Now the attention has shifted to the lodging/hospitality space, where Morgan Stanley Real Estate and Ashford Hospitality Trust are each acquiring pieces of CNL Hotels & Resorts Inc.'s (CHR) portfolio for an aggregate $6.6 billion purchase price.
Â Â Â This transaction follows on the heels of a $405 million sale of 32 CHR assets to an affiliate of Whitehall Street Global Real Estate Limited Partnership, and it finds company with other sizable lodging-sector deals – such as the recent $700 million+ FelCor Lodging Trust/Snyder Hotel Group transaction (see below).
Â Â Â Ashford Hospitality Trust's take – totaling $2.4 billion – reflects 51 CHR properties. Morgan Stanley Real Estate's $4.2 billion piece, however, includes only eight assets. But these eight properties are not standard hospitality fare. The hotels are luxury properties located in six key destination markets from Hawaii to Miami – hotels that simply cannot be replicated.
Â Â Â "Strategically, [CHR] had a mixed product line in its portfolio. It was interesting, the way they carved it up," comments Patrick Ford, president of Portsmouth, N.H.-based Lodging Econometrics.
Â Â Â "It seems to me that the portfolios were put together from the perspectives of the buyers," he adds. "You get three pie cuts out of the whole: three separate portfolios that [each] have a lot of common characteristics – property and asset management characteristics and, probably, similar yield requirements."
Â Â Â Morgan Stanley Real Estate, Ford says, "peeled the cream off the portfolio." The eight properties it is acquiring include three Waldorf=Astoria resorts, as well as Biltmore, Ritz-Carlton, Doral, JW Marriott and Claremont assets. The markets in which these hotels are located have some of the highest average room rates, occupancy rates and rates of growth in the nation.
Â Â Â These one-of-a-kind properties have excellent prospects for rapid appreciation in a lodging market that is still peaking. If the company plans to hold these assets for three or five years, that time frame fits the current lodging real estate cycle very well.
Â Â Â "The lodging industry had record-breaking profitability in 2006, and it is expected to have record-setting profitability in 2007," Ford remarks. "The rates of growth are slowing but, at the gross level, are still at record levels."
Â Â Â Overall, he notes, this massive transaction says less about the hotel sector itself than it does about the emergence and widening footprint of private equity in commercial real estate. These entities are able to support exceptionally large deals.
Â Â Â However, private equity players – like any investor – have their sweet spots. "Private equity's focus is on the high end of the lodging business, as opposed to up and down the chain," Ford says. "It's focused on four- and five-star properties – upper upscale and luxury."
Â Â Â These firms, which almost invariably have short holding times on their assets, are lured by the hotel sector's short-term fundamentals. "What equity groups find attractive about the lodging business is the view of appreciation or the view of high yields – or both – during the near term," he notes. "The lodging industry has demonstrated – and is anticipated to demonstrate over the next few years – those characteristics."
Â Â Â Deals such as the CHR transaction, while infrequent, are expected to dot the commercial real estate landscape in the future. Quite simply, the private equity market is flooded with capital. "There are plenty of funds out there," Ford explains.
Snyder Taps FelCor All-Suite Hotels
FelCor Lodging Trust Inc., an Irving, Texas-based owner of full service, all-suite hotels, has sold a portfolio of nine hotels to the Snyder Hotel Group.
Â Â Â The sale is part of FelCor's previously announced disposition plan, the company says. It has sold 34 of the 45 hotels as part of its ongoing strategy and expects to receive between $700 million and $730 million in total gross proceeds for the 45 hotels.
Â Â Â The portfolio totals 2,201 rooms and includes the Crowne Plaza Omaha in Old Mill, Neb.; the Embassy Suites Minneapolis; three Holiday Inns in Atlanta; and Holiday Inns in Columbus, Ga.; Kansas City, Mo.; Knoxville, Tenn.; and Montgomery, Ala.
$2.2 Billion GE Acquisition
GE Real Estate, a business unit of GE Commercial Finance, has acquired a portfolio comprising 147 assets from Dallas-based Crow Holdings' third real estate fund, Crow Holdings Realty Partners III LP, for $2.2 billion.
Â Â Â The portfolio is composed of 112 industrial buildings (9.3 million square feet), 19 retail centers (3.6 million square feet), eight multifamily properties (3,141 units), six hotels (1,727 rooms) and two office buildings (350,000 square feet) dispersed across the U.S.
Â Â Â As Kimco Realty Corp. previously announced, the company purchased the 19 retail centers in connection with this transaction for approximately $920 million.
Â Â Â "We invest where there are excellent opportunities for growth, both in asset value and portfolio size," says Joe Parsons, president, North America equity, at GE Real Estate. "This transaction brings us a very large, high quality portfolio of real estate assets that lifts our presence in a number of sectors and markets."
FL: EASTERN FINANCIAL CENTER, HIALEAH
WHAT: Located at 2150-2170 West 68th Street, Eastern Financial Center is a two-building, 25,852 square-foot office complex. Major tenants include Eastern Financial Credit Union, Bank of America, FP&L and Radio Disney.
Â Â Â WHO: Thomas D. Wood and Co.'s Miami office secured the transaction with Woodmen of the World Life Insurance Society to refinance the office complex.
Â Â Â $$$: $2.9 million.
Â Â Â TERMS: The 10-year loan amortizes over 25 years and carries a fixed rate of 6.1%.
Â Â Â Thomas D. Wood and Co.: (305) 447-7820.
GA: 3450 STEVE REYNOLDS BLVD., DULUTH
WHAT: The property is a one-story retail center situated on a 4.09-acre site. The tenant is a 42,088 square-foot Sports Authority store.
Â Â Â WHO: CharterRE Capital, Atlanta, arranged the loan through Wells Fargo Commercial Mortgage, which funded the deal through its FrontRunner Program.
Â Â Â $$$: $1.8 million.
Â Â Â TERMS: The loan carries a 10-year term.
Â Â Â Wells Fargo Commercial Mortgage: (866) 883-9326.