Why German's DekaBank Group is using the sale-leaseback model for the Hyatt Centric The Loop Chicago

Deka Immobilien, the real estate arm of Germany's DekaBank Group, has signed a deal to buy the 257-guestroom room Hyatt Centric The Loop Chicago hotel for $110 million. According to the Chicago Tribune, the deal will be one of the highest prices per room ever paid for a Loop hotel at about $428,000 per room. 

The deal is reportedly a sale-leaseback in which the property's developer, an affiliate of Murphy Development Group, will pay rent to Deka and continue to operate the hotel. The Murphy affiliate has a long-term franchise agreement with Hyatt.

The sale, brokered by Jaime Fink and Jeff Bramson of HFF, seems poised to nearly double Murphy Development's costs for the hotel project. Murphy bought the 22-story building for $12.8 million in 2012 and took out a $45-million construction loan to redevelop the building the next year. The hotel opened in 2015. 

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Sales & Leasebacks

This deal comes just over a year after Hamburg-based Union Investment Real Estate bought the 452-room LondonHouse hotel in Chicago for $315 million, or $697,000 per room, the highest price ever paid per-room for a Chicago hotel. Similarly to Hyatt Centric deal, Oxford Capital Group, the seller of the LondonHouse, kept a 25-year contract to lease back the property. 

Hotel sale-leasebacks are more common in Europe and the Middle East than they are in the U.S., the Tribune noted. Oxford founder, President and CEO John Rutledge said that the transaction structure allowed the company to invest in "marquee" U.S. real estate at "an attractive return." The model also helps aleviate concerns over potential oversupply in top markets. 

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