NorthStar, Chatham JV to Buy Hotels for $959M

A joint venture of Chatham Lodging Trust and Cerberus Capital Management is selling, and a JV of Chatham and NorthStar Realty Finance Corp. is buying, the lion’s share of a 51-hotel portfolio in a transaction worth $1.3 billion.

A joint venture of Chatham Lodging Trust and Cerberus Capital Management L.P. is selling, and a JV of Chatham and NorthStar Realty Finance Corp. is buying, the lion’s share of a 6,848-room, 51-hotel portfolio in a transaction worth $1.3 billion, the parties announced last Friday.

NorthStar is in essence acquiring Cerberus’ 89.7 percent stake in the JV, while Chatham is retaining its existing 10.3 percent share. The JV is taking 47 of the 51 hotels, for a net cash price of $933.9 million and a gross price of $958.5 million.

The 47 properties are described as geographically diverse upscale extended-stay hotels and premium-branded select-service hotels located primarily in top metro markets, with the largest concentration of NOI from hotels in California. Thirty-nine are affiliated with Marriott or Hilton.

The deal is expected to close by the end of this quarter. The portfolio will continue to be managed by Island Hospitality Management, Palm Beach, Fla.

“The Cerberus/Chatham joint venture has … proven to be a highly successful investment, turning our initial $37 million investment into distributions of approximately $114 million and profits of approximately $77 million … in less than three years,” Chatham CFO Dennis Craven said in a release.

NorthStar reportedly expects to earn an initial current yield of about 18 percent on its invested equity of $213 million.

“Having spent a substantial portion of my career in and around the hotel industry, I believe that this investment, and the extended-stay and select service space generally, will provide strong risk-adjusted returns, particularly as the broader economy continues to gain momentum,” David Hamamoto, NorthStar’s chairman & CEO, said in a release.

As part of the transaction, Chatham will acquire for a net cash price of $272.6 million (gross price of $341.5 million) four Residence Inn properties in Silicon Valley totaling 751 rooms. Chatham plans to renovate and expand all four, bumping the room count to 1,023 and spending about $59 million in the process.

Neither Chatham nor NorthStar responded to Commercial Property Executive’s requests for additional information.

The Cerberus/Chatham JV purchased the portfolio, then consisting of 64 hotels, from Innkeepers USA Trust in late 2011, after the seller emerged from Chapter 11.

More recently, an investor group led by Cerberus Capital Management L.P., which owns the parent company of Albertsons and other major supermarket chains, agreed to buy Safeway Inc. for about $9.4 billion.