Hersha used a combination of cash and $25 million in fixed-rate, first-mortgage financing with an interest rate of 6.25%. Hersha CEO Jay H. Shah says the deal is structured at an 8.3% forward cap rate. Marriott will continue to manage the property at 4641 Kenmore Ave.
"We look forward to growing our management relationship with Marriott over time," Shah also says in the press release. "With the addition of the Courtyard Alexandria, we have increased our leverage to the upscale segment of the hotel industry to more than half of the total rooms in our total portfolio."
Neil H. Shah, Hersha president and COO, tells GlobeSt.com that the Alexandria acquisition is part of a strategy to invest in high barrier-to-entry markets, especially in the northeastern US. In recent years, the firm has acquired hotels in Boston, New York City, Philadelphia, Hartford and Washington, DC. He says Hersha wants to establish a strong cluster of hotels in Washington, DC, New York City and Boston. "We continue to look for opportunities there," he says, adding there is nothing concrete in the pipeline at the moment.
Hersha's investment strategy includes a mix of core, value add and development opportunities. Core investments, such as the Courtyard by Marriott in Alexandria, are newly built or recently repositioned assets in strong markets that will generate rate growth. Pinnacle Hospitality recently repositioned the asset in a multimillion-dollar development in the past year, Shah says.
This deal was particularly attractive to the firm because it priced better than recent comp sales, such as the Arlington-based Westin trade at $400,000 per key and a Hilton Garden Inn in Arlington at $300,000 per key. "Relative to market comparables we were able to buy it significantly below market and significantly below replacement costs," he says.
Shah attributes the deal to the established relationship it has with Pinnacle Hospitality. "We have acquired another hotel from this development group--the Tyson's Corner Residence Inn," he says. Because of the relationship, Hersha was the first buyer the firm approached and the two reached terms before Pinnacle had completed the redevelopment of the former Sheraton Hotel.
Shah adds Hersha is acquiring the hotel in its first days as a Courtyard by Marriott. "The property will ramp up across the coming few years. This [also] led to a lower price," he says.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
