MINNEAPOLIS-DiamondRock Hospitality Co., based in Bethesda, MD,has signed a purchase agreement to pay $155.5 million for the821-room Minneapolis Hilton here. The hotel, the largest in thecity, is owned by a joint venture of Greenwich, CT-based StarwoodCapital Group and locally-based Haberhill LLC. The venture boughtthe property in March 2006 for $92 million.

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The contractual purchase price for the Hilton Minneapolis is$152 million. In addition to the contractual purchase price,DiamondRock has agreed to fund the seller's cost to defease theexisting mortgage debt secured by the hotel, since the company willnot assume the existing mortgage debt as part of its acquisition.The buyer expects the defeasance cost of about $3.5 million to bepaid at closing.

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DiamondRock said in a statement that it has committed to make a$15.2 million deposit that will become non-refundable on June 17unless the company terminates the purchase and sale agreement priorto that date. The firm said it expects the acquisition to closeearly in its third fiscal quarter of 2010, subject to satisfactorycompletion of its due diligence review of the property and othercustomary closing conditions, including the receipt of third-partyconsents.

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However, Haberhill Managing Director Douglas Greene tellsGlobeSt.com that the sale is far from a done deal. “The closing isnot going to happen until the end of June,” he said. He refusedfurther comment. A DiamondRock spokesman did not return a call forcomment.

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Haberhill, which put the transaction together and negotiated theterms and conditions of both the purchase agreement and long-termmanagement contract with Hilton, serves as the operating partnerand asset manager. The hotel is owned by indirect subsidiaries ofStarwood Capital Group Global LC and an affiliate of Haberhill LLC.To fund the acquisition, the ownership group borrowed $83 millionfrom Greenwich Capital and invested approximately $15 million ofequity.

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The Hilton is the largest hotel in Minneapolis and connectsdirectly to the convention center by the city’s unique skywaysystem. Beginning in the fourth quarter of 2006 and ending in March2007, Haberhill completed the renovation of 740 guest bathrooms,installed new guestroom and hallway carpet and wallpaper and newguestroom desks and desk chairs. This renovation complemented thehotel’s 2005 renovation program, which included a similarrenovation of the remaining 81 rooms, a significant expansion ofthe hotel’s meeting space, as well as a complete renovation of therestaurant and bar facilities.

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Subsequent to this renovation, Haberhill and Starwoodsuccessfully raised an additional $30 million in mezzaninefinancing from an affiliate of AREFIN US Investments LLC in twotranches - $16.5 million in November 2007 and $13.5 million in June2008. This financing allowed both Haberhill and Starwood Capital toreturn more than two times their equity investment in a little overtwo years. Additionally, the hotel continues to return significantcash flow in excess of debt service on both the Senior andMezzanine loan facilities.

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In 2008, Haberhill completed the renovation of all of the suitesat a cost of approximately $1 million. In early 2009, Haberhillfinished the renovation and addition of 10,000 square feet ofmeeting space at a cost of approximately $1.6 million. The 10,000square feet of space consisted of an existing 5,000 square feet ofbreakout space and 5,000 square feet of existing retail tenantspace that was under-utilized. Forward bookings in the spacecurrently exceed $3 million, according to Haberhill’s Web site.

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With the purchase, DiamondRock would own 21 hotels with about10,400 rooms. The company also recently agreed to acquire the $69million senior mortgage loan secured by the 443-room Allerton Hotelin Downtown Chicago. The company said in a statement that it willpurchase the mortgage at a discount that is significantly belowreplacement cost. “This is an exceptional opportunity forDiamondRock to gain ownership through foreclosure of a distressedasset,” said Mark Brugger, CEO, in the statement.

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The Allerton is operated as an independent, non-branded hotel.Chartres Lodging Group, then known as Oxford Lodging Advisory &Investment Group, bought the hotel in 2006 and has been working ona $10 million renovation program for the property.

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