Dealmaker: Hersha Hospitality Trust Acquires Two California Hotels for $123M

Hersha Hospitality Trust, Philadelphia, purchased the Ambrose Hotel in Santa Monica, Calif. and the Courtyard by Marriott in Sunnyvale, Calif. for $122.5 million in separate transactions. 

Hersha used 1031 exchange proceeds from selling two suburban Boston hotels to pay $47.5 million for the 77-room Ambrose Hotel. Company CEO Jay Shah said the firm focuses on creating value in stabilized secondary market hotels and redeploying those gains into high-growth hotels in gateway markets such as Santa Monica. 

“The addition of the Ambrose further hones our geographic mix of urban gateway and destination markets, while focusing the company’s resources on high revenue per available room ‘lifestyle’ hotels,” Shah said. He noted Santa Monica’s growing real estate values and demand generators, “with minimal seasonality and some of the highest barriers to entry in the United States.”

In October Hersha acquired the 145-room Courtyard by Marriott in Sunnyvale, Calif. for $75 million. The property opened in 2014. More than 9.6 million square feet of office space including Yahoo, HP and Lockheed Martin generate demand. 

For the Courtyard by Marriott Sunnyvale acquisition, Hersha assumed $40.6 million in commercial mortgage-backed securities debt that matures in 2025. The debt will remain interest-only until 2020 at a 4.7 percent fixed rate. The firm funded the acquisition by selling seven limited-service assets in Manhattan.

“Across the last several years, the company has invested $350 million in northern and southern California, compelled by the markets’ sound lodging fundamentals, which are supported by strong demand growth and limited new hotel supply constrained by the high cost of land and lengthy entitlement process,” Shah said. 

The $122.5 million combined purchase price reflects a 7.2 percent blended economic capitalization rate for full-year 2017.