Hersha REIT acquires 2 New York City hotels

NEW YORK CITY Hersha Hospitality Trust has purchased a pair of midscale hotels in New York, the 112-key Holiday Inn Express Wall Street and the 81-key Hampton Inn Financial District. The combined acquisition price is US$69.1 million, or US$358,000 per key.

Holiday Inn Express Wall Street is located at the corner of Wall and Water streets and is six blocks from Hersha’s Hampton Inn Seaport and Holiday Inn Wall Street hotels. The newly-constructed hotel opened in July, and Hersha closed on the acquisition at the end of the first quarter.

Hampton Inn Downtown is located at 32 Pearl St. and is Hersha’s fourth downtown New York City hotel. It is a redevelopment project that was begun in 2008. The REIT is acquiring the building for cash and converting its US$8 million mezzanine loan on the project to equity. Completion of the project, including conversion to a Hampton Inn, is expected to cost approximately US$4.5 million and be completed by the first quarter of 2012. Hersha anticipates closing on the acquisition in the second quarter.

Both of the fee simple New York assets were acquired in separate off-market transactions from third-party developers and are being purchased unencumbered of debt. The assets will be managed by Hersha Hospitality Management LP.

“The opportunity to add to the company’s growing presence in the strongest hotel markets in the country has been a stated objective for Hersha, and we are pleased with our progress in executing on this strategy as we now will own interests in 15 hotels in New York City and eight in Washington, D.C.,” says CEO Jay Shah. “Downtown New York City is an attractive hotel market with one of the country’s largest office markets, as well a thriving tourist destination, and these two new hotels complement our existing presence in the area.

“There remains robust demand for limited-service hotels throughout the market, and we expect the dynamics of the market will result in very strong revenue per available room and EBITDA growth over time,” Shah says. “Furthermore, with the acquisition of the Hampton Inn, the company has further refined its strategic direction by eliminating an additional development loan.”

The REIT also announces that it has closed on its previously-announced acquisition of the 152-key Capitol Hill Suites in Washington, D.C., for US$47.5 million, or US$310,000 per key. Centrally located in the Capitol Hill district, it is the company’s eighth hotel in the D.C. region. The purchase price represents a forward capitalization rate of approximately 7.3% on the hotel’s projected 2011 net operating income, stabilizing at approximately 10%. The acquisition was funded by assuming US$32.5 million of existing debt with a 5.81% interest rate and cash on hand.