Even More for Inland American: $393M in Hotel Purchases

Inland American Lodging Group Inc. continues to add upper-upscale and luxury assets to its portfolio, acquiring five hotels in five states with a total of 2,302 rooms this week for about $393 million.

By Gail Kalinoski, Contributing Editor

The Renaissance Arboretum in Austin

Inland American Lodging Group Inc. continues to add upper-upscale and luxury assets to its portfolio, acquiring five hotels in five states with a total of 2,302 rooms this week for about $393 million. Three of the properties were purchased from DiamondRock Hospitality in a $262.5 million deal while two other hotels were bought in separate transactions.

“We’ve been working on these deals (separately) for six months and they all came to fruition on the same day,” Craig Lambert, executive vice president of asset management for Inland American, told Commercial Property Executive. “We feel really good about the future potential of these hotels.”

Inland American Lodging Group is a wholly owned subsidiary of Inland American Real Estate Trust Inc.

The three hotels purchased from DiamondRock are the Renaissance Arboretum in Austin, Texas; the Renaissance Waverly in Atlanta and the Marriott Griffin Gate Resort & Spa in Lexington, Ky. They have a total of 1,422 rooms and more than 153,000 square feet of meeting and banquet space. The purchase price for the three properties was approximately $184,600 per key. They are Marriott affiliated brands and Marriott will continue to manage all three properties.

“This is a very significant transaction for Inland American,” said Marcel Verbass, president & CEO of Inland American Lodging Advisor, Inc. “Inland American is receiving high-quality assets to enhance our portfolio and continue our expansion into the upper-upscale and luxury segments of the market at attractive pricing. Also, the debt assumed on these properties enhances our equity return and our future capital expenditures into these properties should further strengthen their market position.”

Lambert said Inland American plans to spend about $50 million over three years at the five properties, including renovating all the guest rooms, lobbies and convention areas.

The other two properties purchased this week were the Marriott San Francisco Airport Waterfront, a 685-room hotel in Burlingame, Calif., and the Hilton St. Louis Downtown, a 195-room hotel located near the Gateway Arch, St. Louis Convention Center, Edward Jones Dome and Busch Stadium. The REIT paid Host Hotels and Resorts $108 million, or approximately $157,700 per key, for the California hotel. It bought the Hilton St. Louis Downtown from APHM St. Louis, L.L.C. for $22.6 million, or about $115,900 per key.

For more information on the Marriott San Francisco Airport Waterfront, see our other coverage here.

Verbass described the Marriott San Francisco Airport Waterfront as a “premier asset” that was “well positioned to take advantage of the diverse and growing demand drivers in the area.” He noted that the St. Louis property was a “right size investment for this market and will produce solid equity returns.”

Dan Lombardo, an Inland American spokesman, said the REIT was financing the purchases with $286 million in new mortgages and making its own equity investment for the remaining $107 million.

Lambert said the REIT has either assumed loans or put new loans on every hotel it has purchased in the last few years without having to “make any kind of unique or unusual arrangements.”

“If you have a good cash flow asset that has a good story to it, the lenders are certainly amenable to lending on it,” Lambert said, adding that most loans are in the three- to five- or six-year range.

Inland American now has about 100 hotels in its portfolio under various Marriott, Hilton, Starwood, Hyatt, Fairmont, Wyndham, IHG and Choice brands. Most of its assets are Courtyard, Residence Inn, Hilton Garden Inn and Homewood Suites properties and Lambert said the REIT is satisfied with those hotels

Noting they are generally in urban or near urban markets, he described them as “very solid brands.”

“They have good cash flow today as well as tomorrow going forward,” Lambert said.

He confirmed that Inland American is marketing a 17-hotel portfolio, which includes some brands like Holiday Inn Express, Comfort Inn and Hampton Inn. Proceeds of those dispositions would go toward new purchases that better fit Inland American’s current return goals and its plans to add more upper-upscale and luxury properties to the portfolio. But he said acquisition plans for 2012 are not dependent on the dispositions.

Lambert said the company is particularly eyeing properties that cater to groups and conventions, which is why the amount of meeting and banquet space is important. The three DiamondRock hotels it purchased all have at least 60,000 square feet of meeting and banquet space. He added that the San Francisco Airport and St. Louis hotels also derive much of its revenue from groups.

But he said the REIT is also careful about where it seeks acquisitions. Lambert noted that Inland American no longer owns any properties in New York City despite its large convention business.

“The pricing is not favorable to us for current yields,” Lambert said. “Most cap rates are in the 4.5 and 5.5 percent cap rates, which doesn’t meet what our current return goals are.”

However, he would like to add more California properties like the Napa Valley Marriott Hotel, a 275-room upscale resort it acquired in August for $72 million. Lambert also cited the Pacific Northwest as an area to focus on. The REIT has only one hotel, a Courtyard, in the Seattle market, and none in Oregon.