The company is also set to announce another DC deal in the coming weeks, CJUF managing partner Bobby Turner reveals: a $70-million mixed-use project in the Columbia Heights neighborhood. The residential component will have a significant affordable housing component and there will be retail on the ground floor.
The newly acquired hotel, which the companies acquired from Hilton, will remain a Hilton flag, according to Turner. It will continue to be managed by Hilton as well, Turner tells GlobeSt.com. "Hilton shares with us our vision of repositioning a flagship property."
The value-add strategy underpinning the $100-million renovation is to reposition the property so it competes effectively with comparable hotels in the broader DC marketplace, he says. Built in 1965, the hotel now requires updating, Turner explains. "Its position in the market has suffered over the last few years due to new competing product entering the market, plus a lack of capital investment in the Hilton itself."
As part of the rehab, the rooms and public areas will be completely redecorated and reequipped with new electronics and other amenities. The International Ballroom will be updated as well--and complemented by the development of a 18,000-sf junior ballroom and 12,000-sf attached pre-function area for exhibits.
The large ballroom is perfect for larger groups, Turner explains. Part of the company's strategy to reposition the hotel includes marketing the ballroom to groups that require space to accommodate between 1,000 and 10,000 visitors. "We realize, though, that 36,000 sf may be too big for some groups. So we are developing the smaller space to accommodate them," Turner says.
All of the hotel's major systems will be rehabilitated, including water distribution, elevator and heating and air conditioning. A coffee bar and a possible upscale restaurant will also be part of the mix.
Brad Howe, managing director of Lowe Enterprises Investors, tells GlobeSt.com that the hotel's location is also an important attribute.
It is set on five acres and located on Connecticut Avenue near Dupont Circle within walking distance shopping, dining and residential neighborhoods. "Our intention is to restore the hotel to level of quality that is consistent with that location," Howe says.
At $290 million, plus the $100-million renovation, this is by any measure a sizable investment. Howe, though, says it is comparable with other similarly situated hotel trades in the DC area. "DC is one of those markets where there are substantial assets and the market can support a hotel of this size."
Howe says Lowe looks at everything that is marketed here. "We went after this opportunity because of the value-add potential." The hotel was marketed to a select group, he adds.
The deal, which closed last week, is also a significant addition to CJUF's DC portfolio. A joint venture between Canyon Capital Realty Advisors and Magic Johnson, CJUF made its first investment in the Washington, DC market last summer, partnering with Charlotte, NC-based Faison to develop a condominium project next to the Navy Yard Metro station.
"DC is a great market because so many projects meet our urban revitalization goals," he says. Now, with the city under Mayor Arian Fenty's stewardship, he adds, it is likely the company will invest further. "He is a great champion for these types of projects."
For the Hilton transaction, Lowe Enterprises' acquisition team was led by Harmar Thompson, senior vice president of Lowe Enterprises Real Estate Group, and Mike Everett, senior vice president of Lowe Hospitality Group. Pillsbury Winthrop and Sidley Austin LLP provided legal services to the buyers and Prudential Mortgage Capital Corp. is providing the acquisition and renovation loan. Eastdil Secured represented Hilton Hotels Corp.
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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.
