Five Mile Said to Talk With Innkeepers on Hotels After Cerberus Backs Out

Five Mile Capital Partners LLC is in talks with Innkeepers USA Trust after Cerberus Capital Management LP said this week it will walk away from an agreement to buy 64 Innkeepers’ hotels, according to two people with knowledge of the discussions.

Five Mile, which lost to Cerberus in a May auction of the Innkeepers’ properties, remains interested as it nears completion of a separate deal to take control of as many as 140 Red Roof Inns, said the people, who asked not to be named because the information is private. The Stamford, Connecticut- based investment firm’s talks with Innkeepers are at an early stage and may not lead to a deal, they said.

“Bidders who lost the last time may jump at the chance to re-engage with Innkeepers now that the original deal has been terminated,” said Ben Thypin, director of market analysis for Real Capital Analytics Inc., a New York-based property-research firm. “As Five Mile closes in on a potential acquisition of Red Roof, they may be more competitive now that they have a chance to significantly grow their footprint in this sector.”

Calls to Brian Lennon, a lawyer for Palm Beach Florida- based Innkeepers, and the offices of Five Mile weren’t returned. Peter Duda, a spokesman for New York-based Cerberus, declined to comment.

Innkeepers, which operates 71 hotels under brands including Residence Inn, Marriott and Hampton Inn, filed for bankruptcy protection in July 2010 with a pre-arranged reorganization plan. Cerberus, the private-equity firm best known for its buyout of Chrysler, and Chatham Lodging Trust (CLDT), a Palm Beach-based hotel- investment company, won the May auction with a $1.1 billion bid. They topped a $970.7 million offer by Five Mile and a unit of Lehman Brothers Holdings Inc.

Adverse Change

Cerberus and Chatham said Aug. 22 that they had terminated their deal with Innkeeepers, citing a possible adverse change in the company’s business as the reason for backing out of the transaction. Cerberus, which didn’t specify what triggered the decision, is open to negotiating a lower price for Innkeepers, said a person with knowledge of the matter, who asked not be named because the firm is private.

Innkeepers, for which the sale was a key part of its restructuring, is disputing Cerberus and Chatham’s right to back out, and said in court papers that a judge may have to rule on whether the agreement is voided.

Five Mile, which oversees about $2 billion, bought distressed debt backed by Red Roof properties earlier this year, the Wall Street Journal reported in May. The venture that owns Red Roof, which includes Westmont Hospitality Group and Citigroup Inc., had been negotiating with creditors since defaulting on some $754 million in mortgages tied to 127 hotels in 2009, according to Realpoint LLC, the newspaper said.

Caroline Davis, a spokeswoman in New York for Red Roof, declined to comment.

To contact the reporter on this story: Jonathan Keehner in New York at jkeehner@bloomberg.net; Cristina Alesci in New York at calesci2@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net; Christian Baumgaertel at cbaumgaertel@bloomberg.net

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