March 11 (Bloomberg) -- Ashford Hospitality Trust Inc. formed a joint venture to take over the 28-property Highland Hospitality portfolio, including the Ritz-Carlton Atlanta and the Churchill and Melrose hotels in Washington.
The acquisition and restructuring were completed through a $1.28 billion consensual foreclosure, the Dallas-based real estate investment trust said yesterday in a statement. Ashford will own 71.7 percent of the venture, which also includes an institutional partner the REIT didn’t name.
The takeover of the portfolio, with 8,084 hotel rooms, is “strategic and accretive,” Chief Executive Officer Monty Bennett said in the statement. “It would be hard to match the many benefits of this investment. We believe there is a substantial opportunity to improve the hotels’ performance with an aggressive asset management strategy.”
High-end hotels, such as the Hyatt and Ritz-Carlton properties in the Highland portfolio, have shown the biggest increases during the recovery of the last year. Occupancy at luxury hotels in the U.S. climbed to 66 percent in 2010 from 61 percent in 2009, according to Smith Travel Research Inc. The upswing is boosting hotel sales, which are expected to jump as much as 25 percent in the Americas this year, Jones Lang LaSalle Inc.’s hotel investment-services unit said on Jan. 4.
The purchase price for the Highland portfolio comes to $158,000 per room, Ashford said.
Default on Debt
Highland defaulted on $868 million of junior debt in August, the Wall Street Journal reported Jan. 21. Highland owner JER Partners, the investment firm controlled by investor Joseph E. Robert Jr., had been negotiating with creditors including Ashford and Prudential Financial Inc., the newspaper said.
The Journal said Prudential and Ashford were the creditors that would lead the buying group.
Ashford is investing $150 million cash and assuming $786 million of debt in the hotels, according to its statement yesterday. The REIT’s stake in part reflects its previous investments in the portfolio, the company said.
Senior lenders will provide $530 million of three-year financing with two one-year extensions on 25 of the hotels, Ashford said. The venture assumed first mortgages of $146 million on three hotels. Those loans mature in about two years.
Lenders that Ashford didn’t name are providing $419 million of high-interest mezzanine financing for all 28 hotels, the company said.
The hotels, which are in 13 states and the District of Columbia, include the Hilton Boston Back Bay, the Hyatt Regency Savannah in Georgia, the Nashville Renaissance in Tennessee and the Renaissance Palm Springs in California.
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