Host Hotels & Resorts Inc., Bethesda, Md., says it has sold an 89% stake in the 1,400-room Philadelphia Marriott Downtown on Market St. to investors Oaktree Capital Management LP, of Los Angeles (corrected), and Clearview Hotel Capital LLC, Newport Beach, for a price that translates to a "gross entity value" of $303.4 million ($217,000 per occupant, or "key",) Host Hotels & Resorts, Inc. said today. Host Hotels will keep the remaining 11%, chief vice president Struan B. Robertson said in this statement.
Host Hotels had hoped to collect as much as $325 million, as I reported here. Host executives have said they sell hotels when they decide a market face a period of slow growth -- though as a real estate investment trust, Host is often buying and selling hotels to maximize profits and minimize tax liabilities.
For guests and workers, "nothing changes," Robert Allen, general manager for operator Marriott Corp., told me. "2013 was the busiest year ever for this hotel. We're doing very well." In a statement to workers, he added that management expects a 'similarly successful 2014."
Allen wouldn't detail the hotel's occupancy rate, but noted Host is the third of three owners the hotel has had in 19 years, and has also been selling other hotels: "It is a business transaction." Marriott has more than 30 years to run on its 50-year agreement to run the hotel, he added.
Like some other cities, Philadelphia has suffered from a lack of major convention business as well as continued construction of new, taxpayer-subsidized hotels.
For example, developer Brook Lenfest and his partners want to spend $280 million (equity, borrowed, and taxpayer-funded) building 700 rooms ($400,000 a key) of Element and W hotels, among other hotel projects now proposed for Center City. Developer Dennis Maloomian's proposed Aloft hotel adjoining the Convention Center (with at least $2 million in state funding) and developer Robert Zuritsky's new HomeSuites, add to the supply, as have the high-end Palomar, Monaco (corrected) and Le Meridian hotels in recent years, which have proven so popular among high-end guests that clients of the Four Seasons on Benjamin Franklin Parkway are concerned whether that hotel, one of the chain's lowest-priced in the U.S., will be able to keep the brand.
Lenfest said he can't comment on the Marriott deal, not knowing the details. But "I can generally say that public subsidies are needed for this very reason. I can say that the Marriott deal and any sale of a hotel will take the hotel's performance into consideration, as well as the condition of the hotel, and debt. It may be that the hotel is at the end of a cycle where now it needs a substantial capital investment to refit it. It could be that is the value because the buyer is taking on some existing debt.
"The Marriott is a different animal than an Element by Westin and a W. The Marriott is not brand new.
"The fact is the Philadelphia needs the hotel I'm building and that it will be a benefit to the city, to the city's residents" through construction and operating spending and new jobs; the "taxes it will pay over what the parking lot is paying, (benefits to the) Convention Center and the ancillary business it brings to the city.
"If I weren't trying to benefit the city I guess I could have just bought the Marriott or a building and retrofit it as a hotel or bought several hotels." He added, "Things East of Broad Street are a whole different ball game versus West of Broad."
State subsidies "are needed for the most recent hotel developments, and some multifamily developments," since Philadelphia has "New York-level labor and construction costs" but room rates and revenues that are just "a fraction of what you get in New York and Boston and D.C.," Robert Fahey, executive vice president in the Philadelphia office of national commercial property broker CBRE Inc., told me. (Spellings corrected)