ATLANTA— For 19 years, Jameson Inns, Inc. has quietly built its independently owned and operated, midscale limited-service brand of hotels into a portfolio of 107 Southeast- and Midwest-based properties without the help of widespread franchising or a large parent hotel company. But now, through the recent shareholder approval of a $371-million merger, the public company, based here, has been taken private and suddenly finds itself a part of a growing hotel brand family headed by commercial real estate investor JER Partners, which plans on injecting even further investment in the Jameson portfolio. JER Partners— the private equity investment arm of the J.E. Robert Cos.— acquired Jameson with its shareholders approval for $2.97 per share in a joint venture with Longhouse Hospitality, the owner and operator of 44 extended-stay and limited-service properties that are a part of Longhouse’s own Sun Suites, Crestwood Suites and Lodge America brands. The Jameson Inns brand is now the fourth member of that predominantly Southeast-based group. According to Alex Gilbert, JER’s principal of fund investment management, JER has a majority and controlling interest in Longhouse. It acquired that interest in February of 2005 when it invested $75 million in the recapitalization of the Atlanta-based company. JER’s ownership interest also encompasses Longhouse’s hotel operating business known as Park Management Group, which manages the entire Longhouse portfolio. “The major theme here in this acquisition is that we already have a controlling interest in Longhouse Hospitality, which primarily has extended-stay assets, and so it was a great opportunity to extend our Longhouse product focus through the limited-service sector,” Gilbert explained. “Also, our extended-stay product and Jameson Inns have significant overlap in terms of geography, and so it made sense to put them together. Furthermore, we saw how well managed Jameson Inns is, and the brand has very good name recognition in the secondary markets of the Southeast and Midwest. So we really saw an opportunity to take it to the next level. It’s not had that much growth, so we now look forward to growing the brand.” Despite the fact that there are 11 franchised Jameson properties in existence, such growth will not emerge through franchising, Gilbert said. Although he added that franchising is not completely out of the question, he asserted that acquisitions and subsequent conversions will be the primary growth vehicles for Jameson. In fact, JER is already under contract to acquire four hotels that will most likely be converted into Jameson Inns. Gilbert further noted that the Southeast and Midwest will continue to be Jameson’s geographic targets. When asked about the price JER paid for Jameson, Gilbert remarked that it “was a 30% premium to share price, so, yes, clearly it was fair and a good price for the shareholders. We wouldn’t have paid that if there was no opportunity with Jameson, but we do have a lot of work to do.” That work, according to Gilbert, is not staggering in nature when it comes to the physical condition of the Jameson Inns because Jameson reinvested a significant percentage of its cash flow into property improvements in recent years. That reinvestment was more readily seen once Jameson left the ranks of the hotel REITs in January of 2004 and became a taxable “C” corporation. Now overseeing Jameson for Longhouse and JER is Tony Maness, who was the vp of operations at Jameson before the merger. He now holds the same title with Jameson under Longhouse and reports to Dan Burdakin, the president of Park Management Group, and, ultimately, Mike Shea, Longhouse’s CEO. Tom and Craig Kitchin, who previously led Jameson, chose not to continue on with the company following the acquisition. “We’re excited from an operational standpoint, and all of Jameson’s regional people will be unaffected by the merger,” noted Shea, who added that the merger was made easier by the fact that both Jameson and Longhouse are based in Atlanta. “We’re really approaching this as one plus one equals three. It’s not a synergistic merger and it’s not a turnaround operation. We were really small and we were lured to them because of their corporate culture and excellent properties. The Jameson office will now be consolidated into ours, but no one has to move, and that’s a key element of the deal.” Shea further said that the deal was attractive because of the “curb appeal” of the Jameson Inns and the fact that the hotels are located in markets that are complementary to Longhouse’s other chain properties. With regard to those other chains, Shea admitted, “We’ve been in the extended-stay sector for 10 to 11 years now with our three brands, but we’ve been below the radar in the hospitality business. But we have operated profitably and successfully for some time.” In explaining those brands, Shea said that Crestwood Suites is positioned in the lower half of the midscale extended-stay segment; Sun Suites is within the upper end of the economy, extended-stay segment; and Lodge America is in economy extended-stay sector. Along with Jameson, these brands will grow primarily through acquisitions, he said. But ground-up development is also an option. Shea further noted that following the merger of Signature and Jameson Inns in 1999, eight Signature Inn properties still exist in the Jameson portfolio. However, two are currently being converted to Jameson Inns and the rest will be transformed to Jamesons by mid-2007. While Longhouse may be busy with the Jameson portfolio, Gilbert asserted that JER, and specifically its $824-million JER Real Estate Partners III, LP fund, is not done with its rather diversified hotel investing. “We have 170 hotels now,” Gilbert said. “Forty five of them are extended-stay, 110 are limited-service, and then we have upper-upscale central business district assets and suburban full-service assets. Our primary interest is in the hotel real estate, but hotels are operating businesses too and it helps to have a level of control over their operations and the brands in order to extract the value of the real estate. We have probably 20% to 30% of our third fund’s capital invested in hospitality now. And we continue to find the sector attractive and expect to invest in the sector further.”
