Jay Shah, CEO says in a prepared statement that "new properties provide us solid growth opportunities, as they mature, and have been one of the catalysts for our industry leading revenue per available room and growth in funds from operations." He continues that this property, located approximately one-half mile from JFK International Airport, "is the first and only upper upscale asset at one of the world's most recognized and busiest airports."
The Philadelphia-based firm now owns 15 properties in the New York-New Jersey area, including the NU Hotel being developed in Brooklyn. The firm acquired the 45-room boutique Duane Street Hotel in the Tribeca area of New York City for nearly $24.8 million in January. That property was the firm's second independent boutique hotel in New York City. Also, as GlobeSt.com reported in early May, Hersha Hospitality Management entered into a joint venture with AFC Realty Capital to renovate and operate a 24-room hotel in Philadelphia, which recently opened in early June.
The Sharaton transaction is "a direct result of the success of our development loan program, which affords us the right to earn strong cash returns on our investment in high barrier to entry markets while avoiding many of the risks associated with construction in these central business districts," Shah says. "An added benefit of the program is our right to purchase these difficult to source properties, on an off-market basis."
Shah says that "most of the properties currently financed through our development loan program are in the vibrant New York City market, which continues to have solid RevPAR trends from strong domestic and increased international demand." In connection with the purchase, Hersha assumed a floating rate loan for $23.8 million at LIBOR plus 2% and issued 1.2 million Hersha Hospitality Limited Partnership Units to a third party developer, and to Hersha Conduit Associates LLC, a related party entity comprised of certain members of the firm's management team and trustees.
A Robert W. Baird & Co., an employee-owned wealth management, capital markets, asset management and private equity firm, says that following the Hersha purchase, they believe that the firm's portfolio of "relatively newer, select-service hotels position the company well in a difficult hotel market," and Baird continues to recommend shares of Hersha. The firm notes that hotel REITs are down 18% since mid-May. "While the group is likely to continue to face challenges, Hersha's ownership of select-service brands, with newer--and still ramping--hotels, positions it better than its hotel peers, in our view.Select-service hotels stand to benefit from "trading-down" to lower price points, and studies have shown less earnings volatility during economic downturns, Baird says. "We believe Hersha is uniquely positioned as it is the only REIT with a majority of select-service assets."
Baird says that "the Sheraton is the only Starwood branded hotel in that market, gaining a valuable Sheraton flag, despite its unusually small size. The hotel was acquired from a joint venture controlled by Hersha's private arm, and a third party. Sellers took $10.2 million units in Hersha Trust priced at $9 per share. We believe this form of insider buying demonstrates management's view of intrinsic value and maintains balance sheet capacity."
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
