HEI Hospitality Looking to Expand US Hotel Portfolio

Sue Broderick, manager of corporate administration for HEI Hospitality, reports the company has its first property acquisition to be financed by the new fund under contract. She would not divulge the property to be acquired, but says the deal could close later this week.

The original target for the discretionary fund was $250 million. Morgan Stanley was the placement agent for the fund. Participants in the fund include institutional investors, individuals and a "significant investment" from the principals and employees of HEI Hospitality. Merritt Hospitality, a wholly owned subsidiary of HEI, will be the preferred operator of the hotels acquired by the fund. Company officials add, however, that the fund may acquire hotels that are managed by other operating companies.

Commenting on the closing of the equity fund, HEI chairman and chief executive officer Gary Mendell says, "We believe the 10% over-subscription is a good barometer of the interest that investors have at this stage of the economic cycle in acquiring quality hotels that are operated by experienced professionals. This equity, prudently leveraged, will give us the financial strength and flexibility to acquire up to approximately $800 million in hotels over the next 24 to 36 months." He adds that HEI seeks to acquire 200- to 500-room hotels in the top markets.

"We will concentrate on existing, well-located, institutional quality properties," adds Stephen Mendell, HEI executive vice president of acquisitions and development. "We will look at new construction on a very selective basis. Our focus will be on franchising with the internationally recognized premium brands."

HEI Hospitality currently owns 19 hotels throughout the US. Its portfolio of properties includes hotels that are operated under the Westin, Marriott, Sheraton and Hilton franchise brands. The company has acquired more than $500 million in hotel assets over the past 20 months. In January, HEI Hospitality and partners Greenfield Partners and GIC Real Estate purchased five Marriott Hotels from Host Marriott in a $70-million deal.