An affiliate of the Blackstone Real Estate group is acquiring a 145-room Courtyard Marriott in Sunnyvale as part of a seven-hotel deal with a publicly traded REIT, Hersha Hospitality Trust.
Hersha Hospitality (NYSE: HT) purchased the hotel for $75 million, or about $517,000 per key, in 2016, but the current sale values the hotel at $69.1 million, or about $477,000 per key.
In April Hersha announced it had entered a definitive agreement with Blackstone to sell seven noncore select-service urban hotels across its nationwide portfolio for $505 million.
In addition to the Courtyard Marriott, the deal included the 94-room TownePlace Suites, also in Sunnyvale. Hersha acquired that hotel, at 606 S. Bernardo Ave., in 2015 for $27.7 million, or about $295,000 per key. It sold to Blackstone for $29.9 million, or about $318,000 per key, in a deal completed earlier this month.
Of the seven hotels, the Courtyard in Sunnyvale is the lone deal yet to close but is expected to be finalized in the fourth quarter, Hersha CFO Ashish Parikh said. A corporate entity tied to Blackstone applied this week for a new full-service liquor license at the hotel.
The sale results from the Harrisburg, Pennsylvania-based REIT’s change in strategy.
“We’re really focusing our energies more on luxury and lifestyle resort assets,” Parikh said in an interview on Tuesday. “It wasn’t about the market — we like the Bay Area a lot — but rather the type of asset.”
Hersha’s remaining Northern California asset is the luxury 60-room Sanctuary Beach Resort, located just north of Monterey in Marina.
Parikh estimated it might take the Courtyard Sunnyvale “another year or two” to recover its pre-pandemic business. Some markets, such as San Francisco and Chicago, give him particular pause. Large corporate transient-oriented hotels there risk becoming “obsolete” when faced with unfavorable labor agreements and the challenge of filling up to 1,000 rooms and meeting space ballrooms consistently, he said.
“I think those may be the ones that never come back,” Parikh said. “If I was going to avoid a segment of the industry, it would be big-box, urban hotels.”
The Courtyard deal is complicated by negotiations around the debt obligations Blackstone would assume for a commercial mortgage-backed security (CMBS) loan secured by the hotel. Hersha noted in a quarterly report this month that the mortgage borrowing on the hotel failed to meet its debt service coverage ratio (DSCR) at the end of June, and in response the CMBS lender chose to escrow property level cash flow to meet future debt obligations.
“We expect that this mortgage as well as the escrow held by the lender will be assumed by the buyer upon disposition,” Hersha Hospitality wrote in the report.
Blackstone declined to comment when reached on Tuesday.
The Courtyard Marriott opened in October 2014 and caters mainly to business travelers. On-site amenities include more than half a dozen meeting rooms, an outdoor pool and a health and fitness center, per the hotel’s website. The property is located about equidistant between Google’s headquarters and Apple’s Cupertino campus.
Hersha Hospitality will own about 26 hotels across both coasts, concentrated mainly in major Northeast cities, following the wrap-up of the Blackstone deal.
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