Texas Hotels are Drawing Texas-Sized Deals

Everything is bigger in Texas, including hotel trades.

Before the ink has barely dried on the largest single-asset hotel transaction ever in Texas comes another offering involving one of the largest hotels in the Lone Star State, with another massive price tag.

A partnership between San Diego-based Manchester Financial Group and Los Angeles-based Colony Capital has brought to market the leasehold interest in the Fairmont Austin, a 1,048-room hotel in Downtown Austin at 101 Red River Street. Eastdil Secured is marketing the property, with bids expected to come in at about $575K/room, Green Street reported.

That translates to about $600M, a new record for Austin, but not quite as large as last month’s statewide record-breaker: Ryman Hospitality’s $800M purchase from Blackstone of the 1,000-room JW Marriott San Antonio Hill County Resort & Spa.

Blackstone’s deal, which closed on June 5, is the most-lucrative single-asset hotel transaction ever recorded in Texas and the second largest nationally this year, according to Green Street’s Sales Comps Database.

If Fairmont Austin fetches $600M, it would exceed Austin’s previous record for a single-asset hotel trade, the $246M purchase in 2021 by Host Hotels & Resorts of the Hotel Van Zandt.

What Green Street calls “investor exuberance” for hotels in Texas also has pushed the bidding for a portfolio of boutique assets in Austin, Dallas and Houston to close to $300M.

Three hotels under Charles Givens’ Hotel ZaZa brand have gone on the block, encompassing 641 rooms plus the management rights for another with 159 rooms. The three hotels hit the market with an estimated value of $270M, or $421,000/room, with the balance allocated to the management contract. Eastdil Secured has the listing, which is being shopped as a portfolio.

The offering includes the entire Hotel ZaZa line, including fee-simple interests in the 159-room Hotel ZaZa Austin Downtown, the 167-room Hotel ZaZa Dallas Uptown and the 315-room Hotel ZaZa Houston Museum District. The management-contract portion of the listing is for the Hotel ZaZa Houston Memorial City, which is separately owned and would not be part of a sale. The contract expires in December 2027 and includes renewal options.

The portfolio also includes branding and management rights for the Hotel ZaZa line, an independent brand competing in the luxury segment. Hotel ZaZa offers themed rooms to guests, including what are known as Magnificent Seven Suites, named for a popular movie.

According to the report, the three ZaZa properties have drawn significant investor interest due to their strong performance and locations in prime submarkets. Last year, the three owned hotels averaged $183 of revenue per available room, in increase from the pre-pandemic RevPAR of $173.

There have been more than $4B in sales of large Texas hotels in the past two years as investors have been drawn to strong long-term performance fundamentals. According to Green Street’s Sales Comps Database, there were $2.5B in hotel transactions in 2021 in Texas, a state record; last year’s total was $1.6B. This year’s total is on track to top both of them.

As of April, RevPAR at comparable luxury hotels in Austin’s central business district averaged $246.11/room, with 70.8% occupancy and average rates of $347.81, according to STR. That level is tracking ahead of the pre-pandemic level in 2019, when revenues averaged $239.61/room and rates averaged $304.79.

The Fairmont Austin, one of two hotels in Austin to carry a luxury international brand, is subject to a management agreement with Fairmont Hotels & Resorts that runs until 2038.

The 37-story glass tower, with a color-shifting 139-foot spire on its crown, is the third-tallest structure in the city. The building connects via pedestrian bridge to the Austin Convention Center, which hosts the SXSW conference. The Fairmont features 129K SF of meeting space and a rooftop pool.

According to the marketing materials, the hotel’s average RevPAR ranks third among Texas convention center hotels, according to marketing materials.

Manchester and Colony developed the Fairmont Austin in 2018. In 2019, the venture refinanced its construction loan with a $425M debt package including a $300M senior mortgage and two mezzanine loans totaling $125M. The debt package comes due in September, but the partners have the option of a one-year extension.

The Fairmont Austin generates more than two-and-a-half times the income needed to cover its debt load, according to a KBRA Analytics report.