05/18/2011

Westbrook Takes Over St. Regis Hotel in DC

In its second recent high-profile hotel acquisition, Westbrook Partners last week bought defaulted debt on the St. Regis in Washington from Barclays for about $100 million in cash and immediately foreclosed on the luxury property.

Barclays, which held $125 million of senior and mezzanine debt on the St. Regis, won the right to seize the 182-room hotel at a foreclosure auction held April 12. The bank then sold that right to Westbrook.

At the $550,000/room purchase price, Westbrook’s initial annual yield will be roughly 5%.

The price was far below the hotel’s $170 million valuation during a recapitalization in September 2007. Claret Capital, an Irish syndicator, acquired a 90% stake from a Brickman Associates partnership for $153 million, with the partnership retaining a 10% interest. That worked out to $881,000/room, because the property had 193 rooms at the time.

Brickman and its partner, New Valley Corp. of Miami, had acquired the St. Regis in 2005 for $47 million and plowed $85 million into a renovation. Claret stepped in as the property was re-opening. But the hotel’s performance and value were dragged down by the recession, and the Claret partnership defaulted when its debt matured in May 2010, prompting Barclays to file for foreclosure, with CB Richard Ellis as its advisor.

More recently, performance has improved. Revenue per room climbed 3% last year and is projected to grow 14% this year. Net income is expected to reach $5 million this year, up from $2 million last year, when the occupancy rate averaged 66% and the average room rate was $344.

The St. Regis, which opened in 1926 as the Carlton Hotel, has a prime location, at 923 16th Street NW, just two blocks from the White House. The property includes an adjoining 2,000-square-foot townhouse slated for conversion into a spa and additional guest suites.

The deal reflects Westbrook’s strategy of targeting overleveraged high-end hotels in major cities. Two months ago, the New York fund shop took control of the 667-room Westin San Francisco by paying off $172 million of senior and mezzanine debt on the property. The deal staved off a foreclosure auction by the mezzanine lender, RREEF, and provided a clean exit for the previous owner, a partnership between Goldman Sachs’ Whitehall Street Real Estate Funds and Highgate Holdings of New York.

Highgate stayed on to manage the hotel and retained a participation interest that could produce a return in the long run if prescribed performance hurdles for the hotel are achieved.

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