August 18, 2012 · 0 Comments
CHICAGO – AUGUST 17, 2012 – (www.hospitalitybusinessnews.com) Strategic Hotels & Resorts, Inc. announced today that it has signed an agreement to purchase New York City’s Essex House Hotel from the Dubai Investment Group for a gross purchase price of approximately $362.3 million. The purchase price includes 509 hotel rooms, nine condominium units and significant hotel-level cash reserves. Net of the acquired cash reserves, the transaction equates to a purchase price of approximately $685,000 per unit, based on 518 total units. The transaction, which is subject to the satisfaction of customary closing conditions, is expected to close on or before September 7, 2012.
The Company has arranged for $190.0 million in first mortgage financing from Bank of America. The loan will bear interest at LIBOR plus 400 basis points, with a LIBOR floor of 75 basis points, and will be for an initial term of three years, plus two one-year extension options upon the satisfaction of certain financial and other conditions. The balance of the purchase price will be funded in cash. The company is evaluating joint venture options and other alternatives, including asset sales, as capital sources to fund the balance of this acquisition.
The Company has also signed a 50-year management agreement with Marriott International to rebrand the hotel as the JW Marriott Essex House New York. As part of the management agreement, Marriott will guarantee the net operating income of the hotel up to $21.5 million per year for a period of eight years, subject to a maximum funding by Marriott of $14 million in 2013 and $12 million in each year from 2014 to 2020. Total cumulative fundings by Marriott are capped at $40 million. Upon closing, Strategic Hotels plans to invest approximately $18.3 million in various property improvements, including renovations to various common areas, select systems upgrades as well as new signage and other branding efforts to distinguish the property under the JW Marriott flag.
An affiliate of Strategic Hotels previously owned the Essex House Hotel, having sold it to the Dubai Investment Group in 2005 for approximately $440.0 million, which included 605 hotel rooms and ten condominium units. Laurence Geller, President and Chief Executive Officer of Strategic Hotels & Resorts, Inc. commented, “The Essex House is one of New York City’s most recognized high-end hotels, and I am pleased that we are able to reacquire this landmark asset and convert it to the first JW Marriott in Manhattan. The combination of the Essex House Central Park South location, Marriott’s outstanding distribution and world-class customer service, and our successful long-standing relationship with the Marriott brands, clearly positions the Essex House for success. Geller added, “We will continue to evaluate and act upon prudent hotel investments that complement our portfolio and create shareholder value.”
“We’re delighted to have been chosen by our valued partners at Strategic Hotels & Resorts to manage the iconic Essex House Hotel on Central Park South, making it the home of our first JW Marriott hotel in New York City,” commented Arne Sorenson, President and Chief Executive Officer of Marriott International, Inc. “We believe there is substantial upside for this hotel as a JW Marriott brand, especially when combining our sales and marketing channels with the excellent asset management expertise of Strategic Hotels. Come stay with us when you visit New York!”