HershaHospitality Trust has closed on its seven-hotel joint venture withChinese-based Cindat Capital Management Ltd.
The total purchase price, including closing and capitalimprovement costs, is $571.4 million, or $526,000 per key, the company said ina news release. The venture, for seven Manhattan, N.Y., properties, wasdelayed in part bythe vagaries ofmoving capital out of China, company executives have said in recent months.
Cindat, which is backed by investors including and Taikang Life Insurance and its affiliate, holds a 70% ownership stake inthe venture, with Hersha retaining a 30% equity interest, as well as a $37.0million preferred equity interest at a 9.0% fixed coupon.
Natixis Real Estate Capital LLC led a syndicate ofinternational and domestic financial institutions and provided $285 million ofsenior acquisition financing to the venture, while an affiliate of Oaktree RealEstate Finance LLC provided $50 million of mezzanine financing.
Neil Shah, Hersha's president and COO, said in the newsrelease that the company looks forward to "capitalizing on futureopportunities within this venture with a sophisticated and strategic long-termpartner."
Also in the news release, Cindat CEO Greg Peng said: "Demandfor high-quality U.S. real estate assets is great from Chinese investors.Limited service hotels in Manhattan, in our opinion, offer steady cash flowwith relatively low volatility, and hence, good risk-adjusted investmentreturns."
In a May 2 note, Canaccord Genuity analyst Ryan Meliker saidthe yield on the preferred equity financing "will offer some nice cashflow" to Hersha, but "complicates the story." The financing fromthe seller, which is subordinate to the mezzanine financing with slightly loweryield, "brings into question the real valuation for the portfolio sale,"Meliker added.
In an April 29 conference call, Shah said the company hadhoped to time the venture's closing to coincide with its quarterly earningsrelease, but added, "as [with] all big transactions, and particularly withinternational capital involved, there were some slips across this last weekthat prevented us from timing it just right."
The "slips" were related to dollar conversion fromChina, he said, adding that, because Taikang and Cinda have a mandate to investoverseas, "it was never a question of 'if,' but just 'when.'"
"There was a big line of capital that needed to beconverted. And with so many trying to get through a tight funnel, there [were]delays in that," Shah said, according to a .
The properties in the venture are the 210-room Holiday InnExpress Times Square, the 188-room Candlewood Suites Times Square, the 184-roomHampton Inn Times Square, the 144-room Hampton Inn Chelsea, the 136-roomHampton Inn Herald Square, the 113-room Holiday Inn Wall Street and the112-room Holiday Inn Express Water Street.
Hunton & Williams LLP served as legal counsel to Hershaon the transaction, and Sidley Austin LLP served as legal counsel to Cindat,with both firms collectively advising the newly formed joint venture. SolidRock Advisors advised Cindat on the deal.