Chatham Buys Into Strong Performing Silicon Valley Hotel Portfolio

Chatham Lodging Trust, Cerberus Capital Management, Silicon Valley, Sunnyvale, Marriott, Palo Alto, Moutain View, San Mateo, REIT, Bay Area news, hotel news
Residence Inn Palo Alto Mountain View The Registry
Residence Inn Palo Alto Mountain View

By Jon Peterson

Palm Beach, Fla.-based Chatham Lodging Trust believes it’s buying into a very strong hotel portfolio by becoming the sole owner of four Residence Inn by Marriott Hotels located in Silicon Valley.

“We are buying into a mix of assets that have been performing at a very high level. RevPAR was at $149 for 2013, which represents a 12 percent increase on a year-to-year basis. Through May of this year, RevPAR was up another 10 percent in 2014,”says Dennis Craven, chief financial officer for Chatham during its conference call on June 17th discussing the purchase of the assets.

“These properties are located in a very strong market and have been performing at a high level economically and with very strong occupancy,” says Jeff Fisher, chief executive officer of Chatham during the same conference call.

Chatham had owned these assets previously in a joint venture with New York City-based Cerberus Capital Management.

Chatham acquired the hotels at a cap rate of 7.2 percent, according to an e-mail from the buyer. This yield is based on the properties estimated net operating income for 2014.

The purchase price of the hotels was $326.4 million. This transaction was funded by four individual loans from J.P. Morgan Chase totaling $220 million, a $58 million tax-free rollover and the remainder was borrowed from Chatham’s revolving credit facility. The new loans have a 10-year term at an interest rate of 4.64 percent with interest only payments for five years.

The properties that were acquired were the 231-room Residence Inn Sunnyvale Silicon Valley I, the 248-room Residence Inn Sunnyvale Silicon Valley II, the 112-room Residence Inn Palo Alto Mountain View and the 160-room Residence Inn San Mateo. There has been a 20-year franchise agreement signed with Marriott that will keep the assets under this flag for a long time.

Chatham is planning an expansion at each of the properties. This would add 27 units to the whole portfolio and will make the total rooms to be 1,023. The cost for the expansion is expected to be around $59 million or $217,000 per additional room. The added rooms will take 12 months to complete at each property with construction starting in the third or fourth quarter of this year.

Chatham is a major owner of West Coast hotels in the upper-end extended stay product. The self-advised REIT now owns 54 percent of its hotels on the West Coast. The company is planning on looking for additional hotels to buy in this part of the country.

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