Strategic Hotel Capital Completes $1.17B Financing

CHICAGO— Strategic Hotel Capital (SHC) has completed a $1.17 billion refinancing of 15 of its U.S. properties, including its flagship Essex House in New York City, and sold off another four properties for an undisclosed price— three to a partnership of CNL Hospitality Properties and Hilton Hotels Corp. and one to CNL Hospitality Corp. Laurence Geller, CEO of the private hotel investment firm based here, told HOTEL BUSINESS®: “We took advantage of an opportunity we saw in the markets where interest rates were low and lenders liked us a lot. We were delighted with the reaction that we got from the markets: both the lenders and the rating agencies, so we took advantage of it.” Geller said Deutsche Bank underwrote the financing, which was executed via a $910 million commercial mortgage-backed securities offering (CMBS), and a $260 million mezzanine loan. A majority of the investment-grade first tranche was rated by Moody’s Investor Service, Standard & Poors and Fitch Ratings, he noted, with the offering placed with divers European and U.S. banks, pension funds, money managers and life companies. In addition, a mezzanine loan was place with an affiliate of Deutsche Bank, as well as an overseas institutional investor, along with two subordinate mortgage loans, picked up by domestic life companies. Geller also felt the timing is right in terms of SHC’s portfolio. “We saw that the market will believe in the long-term recovery of these hotels,” said the CEO of the refinanced upper-upscale to luxury properties. “We’ve got very little supply in our markets, we’ve got a good management team with a proven track record, and we saw that there hadn’t been that much debt activity by the end of second quarter, third quarter last year, so we thought it would be a very interesting time to go out and see if people were as hungry as we guessed they would be.” The 15 properties included in the CMBS financing are: The Essex House, a Westin Hotel; New York Marriott East Side (both NY); Embassy Suites Lake Buena Vista, FL; Marriott Lincolnshire Resort, Marriott Schaumburg (both IL); Hyatt Regency New Orleans, LA; Hyatt Regency Phoenix, AZ; and Hyatt Regency LaJolla at Aventine, Hilton Burbank Airport, Renaissance Beverly Hills, Ritz-Carlton, Laguna Niguel, Hyatt Regency San Francisco, Park Hyatt San Francisco, Marriott Rancho Las Palmas and Loews Santa Monica Beach Hotel (all CA). The financing carries a two-year term with three, one-year extensions. SHC’s board will determine what the money will go toward, said Geller. “If we see the right acquisition targets, we’re obviously going to be interested in buying assets as we always are, we can always dividend out some of the proceeds. We can do all kinds of stuff. We have to take it one day at a time and see what’s opportunistically out there— and we may do a combination of them all. We’re very cash rich at the moment,” said Geller. SHC has been mentioned in the mix of parties “interested” in all or part of the Six Continents portfolio of hotels since 6C’s business units are in the process of de-merger, as previously reported by HOTEL BUSINESS®. And Geller acknowledged he has said he would be interested “if it went into play.” However, he added, “it would be unusual for us to be hostile.” SHC made a bid along with Marriott International when Six Continents (then Bass) originally went after Inter-Continental Hotels. SHC currently has the InterContinental in Prague in its portfolio. “We’ve followed this very, very carefully. We think the InterContinental brand is a very good brand,” said Geller. Closer to home, the four properties divested last week were on SHC’s target list for selling for about a year, said Geller. “We got what we thought was a reasonably good market price,” he said. “These were assets where we pretty much maximized what we can do with them.” The Hyatt Regency Coral Gables, FL, a 224-room luxury hotel within a mixed-use development and acquired by SHC in 1997, was sol