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July 2, 2012

Lowe Enterprises Buys Houston's Hotel Derek

By Scott Baltic, Contributing Editor

The Hotel Derek, a 314-room independent boutique hotel in Houston’s Galleria area, has been acquired by Lowe Enterprises Investors on behalf of a national hotel investment venture it formed last year with Guardian Life Insurance Co. of America and a subsidiary of Allstate Insurance Co., Lowe Enterprises announced Friday. Destination Hotels & Resorts, a Lowe Enterprises affiliate, will take over management of the 14-story hotel at 2525 West Loop South, adjacent to the Galleria shopping center.

The hotel’s room count includes 10 suites and 16 business studio rooms, and its amenities include a business center, a fitness center, an outdoor pool and terrace, and a restaurant and bar. The property’s 10,000 square feet of meeting space is supplemented by a 4,800-square-foot ballroom.

“Hotel Derek is an ideal fit for our hotel investment venture, which targets well-located, full-service hotels in major metropolitan markets,” said Lowe CEO Bradford Howe in a press release.

“This is a rare boutique property in a market that is dominated by branded hotels,” added senior vice president Russell Munn.

“The Hotel Derek enjoys demand from a growing business segment, as well as leisure travelers who appreciate the proximity to the Galleria. We look to expand group business at the property, as well,” Howe told Commercial Property Executive.

A Houston Chronicle blog reported that the hotel’s seller was Warburg Pincus, of New York. The seller was represented by Eastdil Secured, and Lowe Enterprises represented itself. Wells Fargo Bank provided debt financing; the transaction’s value was not disclosed.

The hotel was built in 1979, a Lowe Enterprises spokesperson told CPE, and had undergone a capital improvement program under a previous owner (not the seller) that had updated the entire hotel from infrastructure and systems to guest rooms and public spaces. The company plans to make further improvements, to the tune of at least $4.5 million, refreshing the guest rooms and common areas and enhancing the meeting space.

The hotel’s name, interestingly, is a reference to the oil industry–a pun on “derrick,” as in drilling rig.

The Galleria-area hotel market had a rough 2009, according to information provided to CPE by Randy McCaslin, vice president & practice leader with the Houston office of PKF Consulting USA. Since then, however, the submarket has rebounded nicely, with substantial increases in occupancy rate (to 80.9 percent in the first quarter), average daily rate and revenue per available room.

Lowe Enterprises also owns, on behalf of an investment client, the Hotel Driskill in Austin.