Denihan, Pebblebrook Complete Manhattan JV Restructuring

The joint venture partners have split up their six-property Manhattan hotel portfolio.

By Scott Baltic, Contributing Editor

The Benjamin Hotel, New York
The Benjamin Hotel, New York

New York—The “Manhattan Collection” of six upper upscale Midtown hotels, currently valued at $820 million, has been divvied up by the two joint venture partners that had bought the portfolio, for a rather higher price about five years ago, the two parties announced late last week.

Pursuant to what reportedly was an amicable redemption agreement, Denihan Investments is now sole owner of four of the hotels, totaling 917 rooms: The Benjamin, Fifty NYC, Gardens NYC and Shelburne NYC (the latter three operated under the Affinia Hotel Collection).

The other joint venture partner, Pebblebrook Hotel Trust of Bethesda, Md., has assumed full ownership of the Dumont NYC and Manhattan NYC, totaling 870 rooms.

“We are delighted to consolidate our ownership of the Manhattan Collection into these four hotels and are planning to invest significant capital into both the Gardens NYC (Upper East Side) and Shelburne NYC (Murray Hill),” Denihan CFO Glenn Wasserman said in a prepared statement.

The Benjamin and Fifty NYC reportedly underwent sizeable renovations in 2013 and 2014, respectively.

Robert Douglas acted as the exclusive financial advisor to Denihan in the restructuring.

“Notwithstanding the relatively strong performance of this portfolio in the face of the headwinds in New York City, Pebblebrook, like many REITs, has been interested in reducing its exposure in New York and gaining full ownership of its properties,” Chris Ropko, senior director of Robert Douglas, stated in the company’s announcement on the transaction.

Hunton & Williams LLP advised Pebblebrook in the deal, through a team led by Carl Schwartz, co-chair of Hunton & Williams’ global real estate practice, and Senior Attorney Anthony Bonan.

“We take great pride in our long-term relationship with Pebblebrook and are happy to have played a part in helping the company achieve its goals through this closing,” said Schwartz in a statement.

At the outset of the venture in August 2011, the portfolio was valued at $910 million. That loss of value is attributable to “a great deal of new supply” and increasing operating costs, which have caused a drop in RevPAR, Robert Douglas Managing Director & Principal Douglas Hercher told Commercial Property Executive.

Hercher added that the transaction “was done on a very cooperative basis.”

The transaction value of $820 million translates into roughly $460,000 per key.

For its 49 percent interest in the joint venture, Pebblebrook received not only two hotels jointly valued at $342.5 million, but $59.3 million of proceeds from Denihan, representing a partial disposition of Pebblebrook’s JV assets, as well as full repayment of its $50.0 million preferred investment in the venture.

All debt previously secured by the Manhattan Collection has been refinanced, and Pebblebrook’s remaining debt is now fully prepayable without penalty.

“We are actively marketing these two hotels for sale and continue to be encouraged with the interest shown by the investment community, from both domestic and international investors, in high-quality Manhattan real estate,” Thomas Fisher, Pebblebrook CIO, said in the REIT’s prepared statement.

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