Downtown Dallas Reels in Hotel Investors
Although downtown is somewhat of a late bloomer, Chatham sees the potential and acquired the 167-room Courtyard by Marriott for $49 million or approximately $293,000 per room earlier this month.
DALLAS—Chatham Lodging Trust, a hotel REIT focused on investing in upscale, extended-stay hotels and premium-branded select-service hotels, saw the potential for downtown Dallas, although the area is somewhat of a late bloomer, the firm acknowledges. Chatham acquired the 167-room Courtyard by Marriott in downtown for $49 million or approximately $293,000 per room earlier this month. The hotel opened in September 2018.
“This is a gorgeous, brand new, superior-quality hotel located just two blocks from the Kay Bailey Hutchison Convention Center in the heart of downtown Dallas,” said Jeffrey H. Fisher, Chatham’s chief executive officer and president. “This is the first new build hotel in downtown Dallas since 2011 and will carry a competitive advantage over nearby select-service hotels which are entirely adaptive re-use or conversion projects. The area has experienced a revival since 2010, with over $5 billion of real estate investments generating a 23% increase in downtown population, as well as an increase in corporate office demand. This hotel expands our Dallas presence and allows us to leverage our market knowledge and Island Hospitality’s deep talent pool to generate strong returns.”
The downtown Dallas market has enjoyed a 7.2% cumulative average growth rate in RevPAR from 2009 to 2017 and a 5.8% increase in room night demand growth for the same period, driven by a strong mix of convention, corporate and leisure demand. The convention center, the nation’s sixth largest, boasts more than 2 million square feet of space and generates more than 1 million room nights of demand annually. The center’s booking pace is up significantly looking ahead to the next five years.
“RevPAR, room night demand and the convention center were certainly drivers too. Our objective is to seek out good deals that are newer premium assets, unencumbered by management, with pricing that is tough to replicate with near-term yields,” Peter Willis, chief investment officer of Chatham Lodging Trust, tells GlobeSt.com. “This led us to the opportunity in Dallas. The combination of growth in RevPAR since 2009, along with a supply compound annual growth rate of 2% opened our eyes. You don’t see that type of balance between the two. And, all of the additional metrics point to future growth.”
By year-end 2018, Dallas hotels are forecast for a RevPAR increase of 2.8% as the result of an estimated decline in occupancy of 0.8% and a 3.6% gain in average daily room rates, according to CBRE Hotels Research. The 2.8% advance in Dallas RevPAR is less than the national projection of a 3.1% increase.
The Courtyard by Marriott Dallas Downtown is a 12-story tower consisting of guest room floors situated on top of the lobby and parking garage. The hotel has approximately 3,500 square feet of meeting space on the 12th floor that sits adjacent to a rooftop restaurant/bar.
“We are very picky when assessing acquisition opportunities, and this hotel fits our long-term growth strategy to acquire younger, premium-branded, high-quality hotels in infill locations with diverse demand generators. The top-floor meeting space and rooftop restaurant/bar provide something unique to downtown Dallas and give us a tremendous asset to generate incremental business from a variety of sources,” Fisher highlighted. “Having owned hotels in Dallas for a long time, the downtown area was forgotten for a while, but over the past six years, really has experienced a renaissance. This hotel is well-positioned to benefit from the significant growth that is expected to continue in downtown Dallas.”
Chatham funded the purchase using available cash, including $24 million of proceeds from equity issued under its share plans in 2018 and borrowings on its unsecured credit facility. The hotel will be managed by Island Hospitality Management, which is 51% owned by Fisher.
“We saw a scenario of great economics at a profit that we could acquire at good returns,” Willis tells GlobeSt.com. “We feel good about the returns to our investors.”
Downtown Dallas is home to eight Fortune 1000 companies, including AT&T, Tenet Healthcare, Jacobs Engineering, HollyFrontier, Builders FirstSource, Neiman Marcus, Comerica and Primoris. There is more than 34 million square feet of office space in downtown, including 24 million square feet of class-A office space.
The downtown area also boasts more than 135,000 employees, and Dallas will continue to be an attractive destination for corporate relocations. Leisure demand comes from the vast venues supporting the arts, music, sport and entertainment industries, as well as museums and historic sites, such as the JFK Memorial Plaza and Sixth Floor Museum at Dealey Plaza one block from the hotel.