NEW YORK CITY—On the heels of its $4 billion acquisition of Griffin-American Healthcare REIT II last month, NorthStar Realty Finance Corp. announced another blockbuster transaction on Thursday morning: it has entered into a definitive agreement to acquire a $1.1 billion hotel portfolio from Inland American Real Estate Trust. The company is partnering with Chatham Lodging Trust to buy the portfolio in a JV in which it will own a 90% stake and Chatham a 10% minority interest.
The portfolio consists of 52 extended stay and select service hotels of approximately 7,000 rooms; Inland Hospitality will continue to manage the majority of these properties. Some 63% of the portfolio is affiliated with the Marriott, with Hilton comprising 32%. It is located across 21 states, including Texas, New Jersey, New York and North Carolina.
Like it did with healthcare, NorthStar is striking out to carve a significant presence in the hotel space. The company also has a pending $700 million acquisition of another hotel portfolio that is expected to close this month. With the two deals, NorthStar Realty will have an approximately $3.2 billion hotel portfolio consisting of 159 hotels and over 20,000 rooms.
"This portfolio is expected to generate strong risk-adjusted returns for our shareholders and provides NorthStar Realty with substantial optionality, scale and diversification in a sector that we strongly believe will continue to benefit meaningfully from a growing economy," says NorthStar Realty's Chairman and Chief Executive Officer, David Hamamoto, in a prepared statement.
NorthStar Realty expects to obtain non-recourse financing for approximately 70-75% of the purchase price and earn an initial mid-teens cash-on-cash yield, based on estimated year-one NOI.
The hotel industry is expected to continue it strong run of growth, a trend that no doubt is driving the acquisition.
Hotel room demand in fact exceeds the rise in supply, according to a new Marcus & Millichap report and the sector is poised to reach new highs in occupied rooms and room revenue in 2014.
For the fifth consecutive year, the hotel industry has experienced at least 10% growth in net operating income "and that has not happened in 30-plus years," Gregory A. LaBerge, vice president and national director of the firm's National Hospitality Group, tells GlobeSt.com.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
