"This was a non-core asset," explains Romy Bhojwani, a senior vice president with Jones Lang LaSalle Hotels, who represented the seller in the transaction. "They had identified the Phoenix hotel as a potential for-sale asset as part of their portfolio rationalization strategy in which they will continue to own assets in luxury space and prime locations." The company began to shift its focus to the higher end of the spectrum three to four years ago, he says, adding it does not plan to sell the Scottsdale Princess, a "five diamond" property in neighboring Scottsdale that is part of the more up-market Fairmont Hotels chain.
In addition to its 696 rooms, the Hyatt Regency has 48,000 sf of meeting space, three food and beverage outlets and a six-story lobby atrium. In Bhojwani's opinion, the hotel at 122 N. 2nd St. will require a "significant" capital infusion to reestablish its prominence in the market.
Bhojwani says the buyer plans to undertake a complete renovation of both the rooms and public spaces. He estimates DiNapoli will probably have to spend $15 million to $20 million on upgrades and repairs.
The broker calculates it would cost even more to bring the property to the luxury level, which he says does not make economic sense in the Downtown Phoenix market with its primary orientation to business travelers. On the other hand, he believes a $20-million outlay by DiNapoli does make sense in light of the $600-million plan to triple the size of the Phoenix Convention Center, which sits across the street from the Hyatt Regency. Phase one was completed in 2006 and the second and final phase will be done in December. "In general, Downtown Phoenix is going through a renaissance," Bhojwani says. "There's a lot of new development under way, which will generate an increase in hotel business."
Bhojwani describes the deal as a win-win situation. "This gives DiNapoli, which specializes in value-add buys, an opportunity to get into an up-and-coming market and take advantage of the changes happening there," he tells GlobeSt.com. "And it gives Strategic Hotels a good return on an asset they've owned for eight years."
The broker calls consummation of the transaction particularly noteworthy in view of today's tight capital market. "It demonstrates you can complete deals in a very challenging environment," he says. "Getting a transaction this size done is a testament to the high quality of the asset, the revival of Downtown Phoenix and the upside that exists in the investment story."
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