NEW YORK CITY Pebblebrook Hotel Trust has taken a 49% stake in six New York City hotels owned and operated Denihan Hospitality Group as part of a new joint venture between the companies.
The transaction values the hotels—Affinia Manhattan, Affinia Shelburne, Affinia Dumont, Affinia 50, Affinia Gardens and The Benjamin—at approximately US$910 million. Comprising 1,640 guestrooms, the hotels are subject to US$600 million in existing first mortgage and mezzanine debt, and Pebblebrook will make a US$152 million equity investment in the joint venture in exchange for its 49% interest.
Denihan will continue to own the remaining 51% interest in the joint venture, and the two companies will share all operating and financial decisions for the joint venture, and Denihan continues as the properties’ management company.
Pebblebrook will fund the investment, which is expected to close by late September, with cash and borrowings from its credit facility. The hotels will be leased to a joint venture lessee owned by Pebblebrook and Denihan.
The deal provides a major cash infusion to Denihan, which plans to use proceeds to accelerate its growth strategy in key urban U.S. markets. Denihan already has a presence in Chicago, Washington and Miami, and its brands include Affinia, The Benjamin and The James. Co-owner Patrick Denihan tells HOTELS that the company is targeting additional hotels in Washington, Los Angeles, San Francisco, Dallas and Philadelphia.
“We believe that current market conditions provide us with the ideal opportunity for growth,” Patrick Denihan says. “We are well-positioned as a leading investor in the hospitality community to acquire additional hotels at below-replacement cost. We have a long track record of redeveloping boutique assets into strongly performing hotels through our world-class operating platform.”
Patrick Denihan and his sister, co-owner Brooke Denihan Barrett, had been quietly shopping for a joint-venture partner for these properties for several months. While they had interest from several top hotel investment funds, the Pebblebrook partnership was the right fit for both entities, Patrick Denihan says.
“We couldn’t have asked for a better or more likeminded partner,” Patrick Denihan says. “We are delighted to be collaborating with Pebblebrook, a company whose growth strategy and operational philosophy is very much aligned with our own. Its financial investment and confidence in these six assets is a testament to Denihan’s 50 years of strong performance in New York City, and will provide us with capital to fuel our expansion into other U.S. urban markets.”
Citigroup acted as the exclusive financial advisor to Denihan in the transaction. Denihan Chief Financial Officer David Duncan was one of the major drivers behind the deal, Patrick Denihan says.