CHICAGO Strategic Hotels & Resorts Inc. has established a 50-50 joint venture with private equity firm Walton Street Capital LLC to recapitalize Strategic’s Fairmont Scottsdale Princess, Arizona.
The recapitalization includes an amendment and extension of the existing CMBS first mortgage debt through 2013, with the option for a second extension into April 2015. The amendment includes a US$7 million principal payment to the CMBS first mortgage. In addition, the joint venture has acquired and retired the hotel’s US$40 million mezzanine debt. In total, the result is a reduction of property debt from US$180 million to US$133 million.
The joint venture is also investing in the development of a 23,000-sq.-ft. ballroom and adjoining meeting space at the 649-key hotel. Including the debt retirement and the expansion project, the total transaction consideration is approximately US$71million, divided equally between the two companies. While Strategic and Walton Street are equal partners in the joint venture, Strategic will receive a promoted return upon the joint venture equity achieving certain hurdle rates.
Strategic will continue as Fairmont Scottsdale’s asset manager.
“This transaction is the result of a careful, focused and proactive strategy to seek the best possible outcome related to the Fairmont Scottsdale Princess hotel,” says Strategic CEO Laurence Geller. “The combination of attractive financing terms, improving hotel performance, increasing stabilization of the Scottsdale market, and the addition of a sophisticated joint venture partner paves the path for us to achieve favorable returns on our investment. Moreover, we believe the addition of the second ballroom and complementary meeting space will allow the hotel to capture greater share of group and event business, and positively impact the asset’s return to peak performance levels.”
Since 2010, the Phoenix/Scottsdale market has been showing continued signs of improvement, with RevPAR growth expected to continue through 2011 and accelerate in 2012. Moreover, no new supply entered the market in 2010 and none is forecasted for 2011.