PHILADELPHIA-Hersha Hospitality Trust announced that the company has entered into a purchase and sale agreement to acquire the 175-room Hyatt Union Square Hotel in New York City for total consideration of $104.1 million, or approximately $595,000 per key. The transaction is expected to close shortly after the seller completes the hotel’s construction.
The consideration to the seller consists of $36 million paid to the seller in cash, the cancellation by the company of a $10 million development loan made to the seller, accrued interest on the loan and the assumption by the company of two mortgage loans secured by the hotel in the original aggregate principal amount of $55 million. While this purchase and sale agreement secures the company’s right to acquire the completed hotel, Hersha is not assuming any construction risk, including the risk of schedule and cost overruns. The hotel is expected to open in 2012.
“The addition of this extremely well located, efficient full service Hyatt hotel greatly enhances our already strong presence in Manhattan,” commented Jay H. Shah, CEO. “The company continues to execute on its long-term plan of establishing itself as one of the premier providers of top quality hotels in high growth urban gateway markets with strong barriers to entry. The Union Square hotel will benefit from some of the most robust lodging demand in the country, and we believe this property is strategically positioned to leverage New York’s strong recovery and the multiple demand generators in Midtown South, Greenwich Village and Downtown."
Hersha sourced this off-market transaction through its development loan program and the acquisition, if completed, will further the company’s stated goal of reducing the outstanding principal balance of its development loan portfolio.
Based on the company’s current underwriting assumptions and estimates, the total consideration to be paid for the hotel, including the cancellation of the development loan and the assumption of the mortgage loans, is expected to represent a first year economic capitalization rate of approximately 6.4 percent and a hotel EBITDA multiple of 14.8x. Hersha estimates, based on its current underwriting assumptions and estimates, that on a stabilized basis, the hotel is being purchased at a stabilized capitalization rate of approximately 10.1 percent and a hotel EBITDA multiple of 10.0x.
Upon completion of the acquisition, the hotel will be managed by Hersha Hospitality Management.