New Hotel Company Lands First Asset

SONOMA, CA-DiamondRock Hospitality Co. has made the first of what will be multiple acquisitions in the coming months as it leverages the $210 million it raised this July in its inaugural stock sale. The six-month-old company from Bethesda, MD picked up the 192-room Lodge at Sonoma, a Renaissance Resort and Spa, from Marriott International for $33 million. DiamondRock executive vice president Mark Brugger tells GlobeSt.com the property was developed by Sonoma LLC at a cost of $50 million and opened in March 2000, right as the tech bubble burst. After Sept. 11, the developer got in trouble with its lender. “They didn’t have any reserves to cover debt services,” says Brugger. Marriott, which had been operating the property, acquired the asset from the developer in order to maintain operating control of the asset. In the sale to DiamondRock, Marriott retains the right to operate the hotel on a long-term basis. Located 45 miles from San Francisco, the Lodge at Sonoma resembles an early California-style lodge with 18 freestanding cottages, a spa and a specialty restaurant. The resort includes about 22,000 sf of meeting space and catering capabilities for groups of 10 to 1,025. A 3,080-sf ballroom accommodates up to 492 for receptions and 292 for banquets. A separate wine building offers 2,304 sf of space. Brugger says the asset is still ramping up, but is profitable, and by the end of 2004 will have doubled its NOI versus 2003. “The market is coming back,” he adds. “It was hit so hard that hopefully there will be a big turnaround as well.”DiamondRock will elect to be a lodging real estate investment trust upon filing its first corporate tax return. The company intends to list with the New York Stock Exchange in 2005. Approximately 70% of the stock that was sold to launch the company earlier this year was acquired by institutional investors, says Brugger. With leverage, DiamondRock will be able to acquire between $450 million and $500 million worth of properties. Brugger says the company already has other assets under contract and is in the process of negotiating several other deals. DiamondRock expects to invest most of its equity between now and early next year.