Hersha Takes Majority Interest in Waterford Portfolio

The JV has formed a new company, Mystic Partners LLC, which is the designated owner of the portfolio. Mystic will also "actively develop new hotels in geographic areas of mutual interest," according to Jay H. Shah, president and COO of locally based Hersha. He tells GlobeSt.com his company's overall investment in the new JV's portfolio is $142 million.

Hersha acquired a 66.7% preferred equity interest in the portfolio's seven stabilized properties and a 50% preferred equity interest in the two newly developed properties. The JV intends to place approximately $160 million of debt for the acquisition, which Shah says will be split among the individual hotels. "Two lenders are already lined up," he adds.

The average age of assets in the portfolio is four years. The stabilized portion is acquired at a 7.8% cap rate on 2004 net operating income and a projected 2005 cap rate of about 8%. The newly developed assets, both in Hartford, CT, are acquired at a price that equates to a projected first-year net operating income cap rate of 7.1%. The entire transaction is expected to close this summer.

The two newly developed properties are: The 409-room Marriott Hartford Downtown, which will open in August and is connected to the Connecticut Convention Center which opens this month; and the 392-room Hilton Hartford, which is six blocks from the convention center and connects to the Hartford Civic Center. It reopened this March following a $30-million renovation and total repositioning.

The six stabilized assets in Connecticut are: 133-room Mystic Residence Inn in Mystic, 78-room Danbury Residence Inn in Danbury, 94-room Southington Residence Inn in Southington, 285-room Mystic Marriott Hotel & Spa in Mystic, 144-key Norwich Courtyard by Marriott and Rosemont Suites in Norwich, and 80-key Waterford SpringHill Suites in Waterford. The seventh stabilized property is 92-room Warwick Courtyard by Marriott in Warwick, RI.

The JV's purchase price for the three largest assets --two in Hartford and Mystic Marriott –is approximately $165,000 a key, or about $179.2 million. The price of the aggregate three Residence Inns, two Courtyards and SpringHill Suites is about $115,000 a key, or just over $71.4 million.

Waterford developed all of the assets. It retains a minority interest in the portfolio and will continue to operate the properties. "This is not a transaction, it's a partnership," Shah tells GlobeSt.com.

The formation of JV partnerships is not unusual for Hersha. It has others with regional focuses, including ones with locally based PRA and with Karger Realty in Boston and American Properties in New Jersey. "The partners are not bound to only develop with us," Shah says, "but they often have a sharper focus on opportunities in their own areas." Of Waterford, he says, "it has a real sharp-shooter focus on Connecticut and may be able to identify opportunities before we would." While the other JV partners "are best-of-class," he says, they are less focused specifically on hotel properties than Waterford.

Of the Waterford portfolio, Shah says, "It's a very high-quality portfolio of assets and premium brands in markets with high barriers to entry and embedded growth. It produces a great fit with our acquisition profile, cluster strategy and aggressive growth plans." A call to Len Wolman of Waterford was not returned by deadline.