Dealmaker: DiamondRock Hospitality Pays $122M for Two Hotels

March 13, 2018

DiamondRock Hospitality Co., Bethesda, Md., acquired the Kimpton Hotel Palomar and The Landing Resort & Spa for a combined $122 million. Both deals closed on March 1.

The real estate investment trust paid $80 million, or $331,000 per key, for the Hotel Palomar in downtown Phoenix. Opened in 2012, the Hotel Palomar in Phoenix’s CityScape mixed-use project is immediately across from the NBA Basketball Talking Stick Arena and and a few blocks from Chase Field Major League Baseball park.

DiamondRock President and CEO Mark Brugger said downtown Phoenix continues to evolve as a year-round destination and a 24-hour urban city. Revenue generated in downtown from the retail, hotel and restaurant sectors increased nearly 75 percent from 2008 to 2014.

Since 2012, the Phoenix market achieved an 8.5 percent revenue per available room compound annual growth rate, significantly outperforming the U.S. national average. Demand has grown 16.6 percent since 2012, strongly outpacing the 0.4 percent supply growth.

DiamondRock also acquired the 77-room The Landing Resort and Spa in Lake Tahoe, Calif., for $42 million–$545,000 per key.

“This acquisition is well aligned with our capital allocation strategy and increases our portfolio’s exposure to resorts, West Coast markets and independent operators,” Brugger said. “Furthermore, we see numerous opportunities to enhance performance through the implementation of our asset management best practices and our return on investment capital plan.”

Due to its proximity to San Francisco, Silicon Valley, San Jose and Sacramento, Lake Tahoe attracts a high net worth clientele and has established a strong foothold with international travelers. The recent $24 million expansion of Reno/Tahoe International Airport has improved accessibility to Lake Tahoe, providing more than 120 daily flights.

Brugger noted Lake Tahoe’s high barriers to entry helped propel the South Lake Tahoe market to 9.2 percent average annual RevPAR growth over the past four years.