DiamondRock to Shell Out $335M for Radisson Lexington Hotel
- May 18, 2011
May 17, 2011
By Barbra Murray, Contributing Writer
Major Manhattan hotel trading continues as DiamondRock Hospitality Co. prepares to purchase the Radisson Lexington Hotel New York in Midtown. The lodging REIT signed on the dotted line of an agreement to acquire the 712-room room property from Lexington Hotel L.L.C.—a partnership involving The Blackstone Group L.P., Whitehall Street Real Estate L.P. XII, Oxford Capital Partners, Inc. and Goldman Sachs–for $355 million.
LaSalle Bank N.A. has held a $100 million mortgage loan on the asset since 2007. Even with a price tag of approximately $498,600 per-key, DiamondRock CEO Mark W. Brugger asserts that the company is getting the property at 511 Lexington Ave. “at a material discount to replacement cost.” Originally developed in 1929, the 27-story hotel tower has been kept in tip-top shape courtesy of a series of renovations including a $20 million upgrade in 2006. In addition to luxury guestrooms, the lodging destination offers several food and beverage outlets, with five of the six eateries leased to third parties. Highgate Hotels has served as the facility’s operator for the last 11 years, and is expected to stay on with the new ownership in the same capacity. However, change may be on the horizon, as DiamondRock plans to assume only a short-term franchise agreement for the Radisson brand.
DiamondRock, which anticipates relying on cash on hand and a $100 million borrowing under its corporate credit facility to finance the acquisition—made its last New York City hotel purchase in September 2010 when it bought the 169-room Hilton Garden Inn Chelsea for $68.4 million. And the REIT is thinking ahead, way ahead. In January of this year, it entered into an agreement to buy a hotel on 42nd St. in Times Square for approximately $112.5 million to $135 million upon the property’s completion in 2013.
DiamondRock, like hordes of other real estate investors from near and far, has every reason to keep an eye on Manhattan. “Indeed, New York City ranked as the top global city for foreign real estate investment for 2011,” real estate services firm Domain Properties notes in its first quarter 2011 report. “With an occupancy rate as high as 88.4 percent, the NYC hotel market reflects a hot industry. New York City room and occupancy rates are highest in the country.”
There were numerous big-ticket transactions during the first quarter and it appears that the pace will not abate any time soon. The list of deals included RJ Development’s acquisition of the 760-room Doubletree Metropolitan Hotel for $355 million; Host Hotels & Resorts’ agreement to pay $313.5 million for the 775-room New York Helmsley; and FelCor Lodging Trust’s commitment to buy the 168-room The Royalton and the 114-room Morgans from Morgans Hotel Group Co. for a sum of $140 million.