Strategic Brings in Partner to Complete Essex Acquistion

Strategic Hotels & Resorts Inc. (BEE) said it completed the $362.3 million purchase of Manhattan’s Essex House hotel and formed a partnership with KSL Capital Partners LLC to fund the acquisition.

Strategic will own 51 percent of the venture, the Chicago- based company said in a statement today. The seller was Dubai Investment Group LLC, the real estate and asset-management arm of Dubai Group LLC, which is controlled by the emirate’s ruler.

“Consistent with our strategy of being an opportunistic investor, we moved quickly to take advantage of this highly compelling opportunity,” Laurence Geller, Strategic’s president and chief executive officer, said in the statement.

Strategic said a week ago that the sale’s completion would be delayed until today as it worked on financing. The mortgage backed by the Essex House matured Sept. 9, according to data compiled by Bloomberg. It was transferred two days later to a so-called special servicer, Fitch Ratings said. The reason was maturity default, meaning the debt was unpaid at the time it came due, according to Fitch. Special servicers negotiate with property owners on behalf of commercial-mortgage bondholders.

Essex House, located across from Central Park and known for the red neon sign bearing its name atop the 40-story tower, opened in 1931. Dubai Investment bought the property in 2005 for $440 million and spent $90 million more on renovations, according to Real Capital Analytics Inc., a New York-based research firm.

Strategic partnered with KSL on the equity portion of the acquisition. The joint venture also got a $190 million mortgage from Bank of America Corp., according to today’s statement.

Management Contract

Marriott International Inc. (MAR) will manage the property starting Sept 18, and it will operate under the company’s JW Marriott brand. Under the contract, Bethesda, Maryland-based Marriott will manage the property for 50 years and guarantee as much as $21.5 million of hotel net operating income annually for eight years, according to an August statement.

The Essex acquisition works out to about $685,000 per unit for the 509 hotel rooms and nine condominiums, according to Strategic, a real estate investment trust that owns luxury hotels and resorts. The company plans to spend about $18.3 million on Essex property improvements.

Strategic said that its share of earnings from the property, including payments from Marriott, will contribute about $3.5 million of earnings before interest, taxes depreciation and amortization for the remainder of 2012.

To contact the reporter on this story: Oshrat Carmiel in New York at ocarmiel1@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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