FelCor Sell-Off Brings Out Two CBD Hotel Properties

Though just debuting on the market, the Embassy Suites hotels were identified in December 2003 as prime candidates for disposition. FelCor is into its second year of a disposition strategy of non-core properties. The 216-room Minneapolis Downtown at 425 S. 7th St. is one of four FelCor-owned Embassy Suites in the city while the 268-room Cleveland Downtown at 1701 E. 12th St. is the REIT's only asset left in Ohio.

"These are good assets in markets with significant upside," Thomas Fisher, senior vice president for Jones Lang LaSalle Hotels, tells GlobeSt.com about the newest properties on FelCor's "to go" list. There is no deadline on the portfolio offering, also available separately, but he expects to be calling for bids within six weeks.

Fisher says the Embassy license agreements have 10 to 12 years remaining on the terms. But, the key bait for the deal is the "unencumbered management" status. Fisher says the duet presently is corporate-managed by Hilton Hotels Corp. "There will be strong interest," he says, "certainly with the brand and product itself."

The repositioning proposition is an "unparalleled window of opportunity in the current real estate market," Arthur Buser, Jones Lang LaSalle Hotels' managing director, said in a press release. "Management availability also provides an opening to implement new yield management strategies, cost controls and marketing initiatives."

The Cleveland hotel is located within Reserve Square, a mixed-use development in the heart of the CBD. The hotel's recently awarded status as a military entry processing station is projected to generate an average of 300 to 400 room nights per month. The hotel, developed in 1988 in apartment building conversion, is within walking distance of the convention center, Galleria, Jacobs Field and Gund Arena. Its nightly rates range from $130 to $219.

The Minneapolis hotel is situated within Centre Village, a mixed-use development with a 2004-05 ticket for a major renovation. The hotel, with skywalk access to the downtown, was built in 1986 and renovated in 1996. It also sits within blocks of the convention center as well as the Target Center and Hubert H. Humphrey Metrodome. Rooms cost from $119 to $229 per night.

In March, FelCor sold four hotels for $30 million, taking its disposition roster to 29. Ten more hotels are expected to sell this year. Its strategy is to refill the portfolio with resort-style properties like the 132-room Holiday Inn-Santa Monica, a top-dollar draw with a Pacific Ocean view in a location with high barriers to entry. FelCor spent $27 million for the deed.

To date, the sell-off primarily has focused on Holiday Inn brands. The Minneapolis and Cleveland listings most likely will pull top dollar, given the brand's top ranking for ADR, RevPAR and occupancy in the FelCor portfolio. Fisher says the duet's numbers are guarded by a confidentiality clause. However, FelCor's 10K report showed the brand overall accounted for 46% of the 2003 operating profits with fourth quarter occupancy posting 63.9%. The Embassy Suites flag produced a Q4 RevPAR of $73.15 and ADR of $114.52.