Prepping for NYC’s Rebound, Hersha Closes Acquisition of Times Square Hotels for $165M

The U.S. hotel market has to bounce back at some point, and with the recent closing of acquisitions involving three hotels in New York City's Times Square, Hersha Hospitality Trust has positioned itself to take advantage of the Big Apple's impending revival.

February 17, 2009
By Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user Francisco Diez

The U.S. hotel market has to bounce back at some point, and with the recent closing of acquisitions involving three hotels in New York City’s Times Square, Hersha Hospitality Trust has positioned itself to take advantage of the Big Apple’s impending revival. The Philadelphia-based REIT paid an aggregate $165 million for the Hampton Inn, Candlewood Suites and Holiday Inn Express Times Square in separate transactions.

With the addition of mid-scale/select service properties Hampton Inn and Holiday Inn Express, and the extended-stay property Candlewood Suites, Hersha has enhanced its portfolio by an aggregate 582 guestrooms and taken a major step in its long-term goal of expanding its presence in the city. The hotels, all of which sit along 39th Street, are brand-new and have been managed by Hersha affiliate Hersha Hospitality Management since opening. The REIT acquired the assets at prices below replacement cost, relying on proceeds from a recent public offering, as well as the issuance of nearly 1.5 million units of limited partnership interest in Hersha’s operating partnership to finance the purchases.

The U.S. hotel market has taken quite a beating. With both leisure and business travel having plummeted due to the recession and the global financial crisis, the sector, according to a fourth quarter 2009 report by Marcus & Millichap Real Estate Investment Services, has experienced one of its worst declines on record. However, all is not lost.

“New York City remains the strongest hotel market in the country by far,” Hersha CFO Ashish Parikh told CPE. “It was the worst-performing from the fourth quarter of 2008 to the fourth quarter of 2008 because 2003 to 2008 had been so strong. But with the decline of the financial sector in New York and internationally, and the cessation of business activity, as well, New York has certainly fallen more than most. But Hersha believes in New York City as a leading leisure destination. Last year, it surpassed Orlando and Las Vegas, and as business travel comes back with the overall recovery of business, we think New York will outperform all other major markets in the country.”

As per the Marcus & Millichap report, despite its problems, New York City still has the highest year-to-date occupancy among the top 25 largest markets in the U.S.

While according to the report the hotel market will begin its recovery at some point in 2010, Hersha plans to be very cautious about any further purchases this year. “We’re targeting Boston, New York, Washington, D.C., and Philadelphia,” Parikh said. “If we can find attractive acquisitions in those markets, we would certainly move forward, but we’re being very selective and are not going out of those cities.”

Hersha boasts a portfolio of upscale, mid-scale and extended-stay hotels in leading metropolitan locales. It owns interests in properties accounting for 9,838 guestrooms predominantly along the Northeast Corridor, as well as in Northern California and Scottsdale, Ariz.