UNIVERSAL CITY, CA-The sale of the 451-room Sheraton Universal hotel to China’s Shenzhen New World Group Co. illustrates the value that offshore investors perceive in US real estate assets today, according to lawyers from Jeffer Mangels Butler & Mitchell who were involved in the deal. Lawyers from JMBM’s Global Hospitality Group represented the receiver and structured the sale so that the 20-story, 451 room hotel could be conveyed while the hotel was in receivership, according to an announcement by the law firm. Terms of the sale were not officially disclosed, but it has been widely reported as $90 million.

Jim Butler, chairman of JMBM’s Global Hospitality Group, noted that as investment groups and private equity firms are circling coveted assets, “This new wave of investment includes significant participation by foreign investors who believe US hotels are ‘really cheap’ due to current exchange rates.” Added Butler, “Given its proximity to Universal Studios, Shenzhen’s strategic purchase could prove one of the best purchases in this economic cycle."

REITs also have been big buyers of US hotels in the past year, according to hotel industry sources, who point out that the REITs have a low cost of capital that makes the hotel properties attractive, especially in light of improving fundamentals. The Sheraton sale is sees as further evidence that the hotel market generally has bottomed out nationally and in Los Angeles and other major cities in particular. US REITs and offshore capital have been the dominant buyers in the last year, in California in particular, for high-quality hotels, with REITs accounting for 50% to 60% of the hotel sales volume in 2010.

RevPAR growth in top markets is one reason that investors are paying more for top properties in top markets than they did when the prices hit bottom in 2009. RevPAR grew by 8% in the Los Angeles hotel market in 2010, compared with 5% nationally, and it hit double digits in New York City for the year.

JMBM's Butler pointed out that, in addition to the favorable exchange rate, Asian investors are looking to capitalize on the growing number of Asian tourists visiting the US by providing them with US hotels that are culturally in tune with their needs. Chinese tourists now rank fourth and South Korean visitors fifth, among all foreign citizens visiting Los Angeles, according to the Los Angeles Times.

The hotel had been in receivership before the sale, a situation that can complicate title transfer, according to JMBM. Guy Maisnik, the lead lawyer in the transaction for JMBM, observed that buyers, seller and lenders ”face significant challenges when a hotel is in financial trouble.”Maisnik explained that the sale of a hotel by a receiver is very unusual because such a sale includes both real estate and a complex operating business. "It’s a cutting-edge legal process, and not allowed in all states,” Maisnik points out.

The receiver for the Sheraton was Mark Burden of RIM Hospitality, according to the JMBM announcement. In addition to Maisnik, JMBM attorneys for the receiver included Neil Erickson and Jeffrey Steiner. Attorney for the special servicer was Diane Stanfield. The hotel was marketed by a Los Angeles-based Jones Lang LaSalle team led by John Strauss.