The 2100 S. Priest Dr. hotel, which is running at less than 60% occupancy, was bought from State Farm Insurance Co. of Bloomington, IL. "Upon stabilization, the numbers should be closer to 80% occupancy," says John Manning, vice president in the San Francisco office for Newport Beach, CA-based Buchanan Street Partners Inc. To get the deal across the closing table, Manning arranged $18.25 million of acquisition financing in a non-recourse bridge loan from Legg Mason Real Estate Investors Inc. of Los Angeles.

Manning tells GlobeSt.com that the new owners are planning a medium-term hold of the hotel. The top-to-bottom overhaul will include the addition a 30,000-sf conference center and new landscaping.

According to Manning, the four-year bridge loan has two years of interest-only payments and a 25-year amortization. Interest rates for similar packages tend to range from 2.25 to 5 points over Libor. Manning says the JV's package falls into the upper end of the scale because it's a hotel. "There's some pre-payment flexibility," he adds. "If they're stabilized within that timeframe, they can pay it off. I think they'll be well stabilized in that time."

Gustin and Driftwood have teamed before on turnaround projects. "What has tended to happen in the past is that Gustin has developed or bought the hotels and used Driftwood as the operators," Manning says. "But in this particular deal, Driftwood wanted to invest so they came to Gustin, who they knew well, to help put the whole deal together."

Manning says the hotel property's attraction was the all-in cost of $25 million. "Overall, this is a very attractive hotel and location," he says, "and they found it an excellent investment. Tempe is a strong area, especially with the university [Arizona State University] campus there."