Hersha-Cindat $571M Hotel Deal to Involve 1031 Exchanges

Hersha's sale of seven Manhattan hotels, totaling almost 1,100 rooms, to the Chinese firm is a strategic move for the hospitality company.

By Scott Baltic, Contributing Editor

Three of the seven Manhattan hotels sold in the deal: Holiday Inn Express Times Square, Candlewood Suites Times Square and Hampton Inn Times Square
Three of the seven Manhattan hotels sold in the deal: Holiday Inn Express Times Square, Candlewood Suites Times Square and Hampton Inn Times Square

Hersha Hospitality Trust announced late last week that it will be selling seven limited-service hotels in Manhattan to a joint venture between itself and Chinese firm Cindat Capital Management Ltd. for $571.4 million. The properties total 1,087 rooms, valuing the transaction at about $526,000 per key.

As currently proposed, the JV will be structured with Cindat as the preferred partner holding a 70 percent ownership stake, while Hersha retains a 30 percent equity interest. The transaction is scheduled to close by the end of March.

The seven properties in the transaction are:

  • Holiday Inn Express Times Square, 210 rooms
  • Candlewood Suites Times Square, 188 rooms
  • Hampton Inn Times Square, 184 rooms
  • Hampton Inn Chelsea, 144 rooms
  • Hampton Inn Herald Square, 136 rooms
  • Holiday Inn Wall Street, 113 rooms
  • Holiday Inn Express Wall Street, 112 rooms

Hersha reportedly expects to realize about $300 million in net proceeds from the transaction, with taxable gains of $170 million to $180 million, so it intends to acquire assets as part of a like-kind exchange under Internal Revenue Code Section 1031. So far, the REIT says, it has accounted for a “significant portion” of the 1031 exchange through the purchase of The Sanctuary Beach Resort on Monterey Bay, the Ritz-Carlton Georgetown and the Hilton Garden Inn M Street, the latter two both in Washington, D.C.

The REIT closed on the 86-room Ritz-Carlton Georgetown in late December, and Westbrook Partners was the seller, a Hersha spokesperson told CPE. The sale price was $50.0 million.

The acquisition of the Sanctuary Beach Resort, from a private owner, closed in late January.

And Hersha reportedly expects to close before the end of the first quarter on the Hilton Garden Inn M Street, which is being purchased from Starwood Capital and OTO Development, according to a Hersha spokesperson. The 238-room property will go for $106.5 million.

The announcement also referenced Hersha’s purchase last June of the St. Gregory Hotel & Suites, a 155-key property in the DuPont Circle neighborhood, only a block from the Hilton Garden Inn M Street. The purchase of the Hilton Garden Inn M Street will bring to five the number of Hersha’s hotels in Washington, D.C.

“On a pro forma basis, the sale reduces Hersha’s EBITDA exposure in New York City from approximately 43.0 percent in 2015 to 25.0 percent of consolidated EBITDA in 2016,” Hersha President & CEO Neil H. Shah said in a prepared statement. Beyond the hotel investments in Washington, D.C., and California, he added, the company will use the sale proceeds to continue its share-repurchase program and repay debt.

Cushman & Wakefield advised Hersha on the sale of the Manhattan properties.