ATLANTA-Houston-based Moody National REIT I, a non-traded publicly-registered REIT, which became effective on April 15, 2009, made its first official purchase with the 128-unit Residence Inn by Marriott in Atlanta's Perimeter Center. The REIT’s focus is on acquiring select-service hotels in the top 25 metropolitan markets. Over the next two years, plans call for it to raise $1.1 billion through the sale of shares to fund more acquisitions.
The acquisition of the Residence Inn was done in a manner befitting the times. “The real activity in the hotel business today is in foreclosures,” says Guy Trusty, president of Lodging & Hospitality Realty in Coral Gables, Florida. There are few conventional sales, he says, because so many hotels have suffered a loss in value over the last couple of years.
Rather than buying hotels in a conventional way, investors today are buying hotel notes from the lenders which ultimately leads to the liquidation of the hotel, says Trusty. In this way, an investor can own the hotel for the value of the note, which typically is written down by 40% to 50%, but that write-down doesn’t include the owner’s equity, so in reality, he says, the write-down of the property value is actually more than 50%, a bargain by any standard.
The way in which Moody National REIT I came to possess the Residence Inn hotel in Atlanta is not as straight-forward as the process described by Trusty. Still, there are similarities between the two methods.
Citigroup North America had a $5 million loan on the Residence Inn, which it wrote down to facilitate the purchase of the property by Moody National REIT I in a joint venture says Brett C. Moody, who is the chairman of the board of the REIT as well as the chairman of Moody National Companies, based in Houston, which initiated the REIT. An entity owned directly by Brett Moody is also the 25% joint-venture partner which owns the hotel along with Moody National REIT I.
And in another twist of this convoluted story, the Residence Inn was purchased from a tenant-in-common structure, which involved 27 different investors. These investors bought interests in the property from none other than an affiliate of Moody National Companies, which began syndicating the shares in 2007. Brett Moody says this transaction was not really a buy-back of the hotel because, “in 2010, Moody National Companies no longer owned the property, because it had been syndicated.”
According to the website, “Citybizlist Atlanta,” the Residence Inn was purchased for $7.35 Million, including $5 million in debt, plus closing costs and transfer taxes. (Brett C. Moody declined to discuss the purchase price of the hotel and there was no record of this latest sale in the public records in Fulton County, Georgia.)
A REIT cannot own and operate a hotel business, says Brett Moody, so it forms a taxable REIT subsidiary which leases and operates the hotel. A master tenant, in the form of a taxable REIT subsidiary, will lease the hotel and pay rent to the owner.
The Residence Inn Atlanta Perimeter Center is an all-suite hotel built in 1987 in the Central Perimeter submarket near I-285 and Georgia Highway 400. Its rooms range from 500-square-foot studios to 800-square-foot, bi-level, two bedroom penthouse suites.
Moody National REIT I is focused on Marriott, Hilton and Hyatt select service hotels in major metropolitan markets on the East coast, West coast and Sunbelt regions, says Brett Moody. More specifically, the REIT will focus on the Marriott Courtyard, Marriott Residence Inn, Hilton Garden Inn, Hampton Inn & Suites and Embassy Suites, among other brands.
Brett Moody describes select service as offering “upper-scale limited service with a breakfast component, maybe a light lunch, a business center and workout facilities.”
Moody says that he founded Moody National Companies in 1996 and they have owned and operated $2 billion worth of commercial real estate. The company is also a developer, having just completed and opened a Marriott Courtyard in Houston in the Texas Medical Center district.
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