PALM BEACH, FL—Chatham Lodging Trust, a hotel REIT focused on investing in upscale, extended-stay hotels and premium-branded, select-service hotels, has acquired the 81-room Residence Inn Boston Dedham, and is under contract to purchase the 105-room Residence Inn Fort Lauderdale Intracoastal/Il Lugano in Florida. The Fort Lauderdale transaction is expected to close in late August, following customary due diligence. Chatham is acquiring the two hotels from the Claremont Companies for $55.5 million, or approximately $298,000 per room.
“Our outlook on the industry remains bullish, and we continue to find excellent opportunities to add properties that match our strategy of acquiring premium-branded, high-quality, in-fill hotels with high barriers to entry and growing demand in two of the country’s strongest lodging markets,” said Jeffrey H. Fisher, Chatham’s CEO and president. “Peter Willis, our chief investment officer, sourced these stellar acquisitions privately through his extensive network of industry relationships.
“The Residence Inn Boston Dedham is ideally located in a thriving area just southwest of downtown Boston in the heart of the Route 1/Route 128 corridor, inside of the Route 128 loop. The hotel fits in perfectly with our Homewood Suites Billerica and Hilton Garden Inn Burlington northwest of downtown Boston along the same Route 128 beltway, and will give us strong economies of scale.
“The Residence Inn Fort Lauderdale Intracoastal/Il Lugano is an absolute gem of an asset located directly on the Intracoastal Waterway with stunning views in a rapidly growing area of South Florida that we believe will realize outsized growth over the next few years,” he noted.
Opened in 1998, the Residence Inn Dedham is near 9.7 million sq. ft. of office space within a 10-mile radius, and is within walking distance to the 675,000-sq.-ft. Legacy Place Life Style Retail Center. The property draws significant corporate demand from local corporations such as MediTech, Adidas/Reebok and Analog Devices. The hotel is in excellent condition as a result of $2.0 million of renovations and enhancements, including an expanded fitness room, completed in 2011. Chatham estimates it acquired the property at a year-one net operating income capitalization rate in the 7.5 to 8.0% range.
The Residence Inn Fort Lauderdale Intracoastal/Il Lugano opened in 2008 as the Il Lugano Hotel and Residences, and was converted to a Residence Inn in 2014. The 14-story building is located on the eastern edge of the Intracoastal Waterway at Oakland Park Blvd., and includes 105 rooms ranging from 550 sq. ft. to more than 850 sq. ft., all with views of the Intracoastal Waterway and/or the Atlantic Ocean. Other hotel amenities include the Coastal View Restaurant, intracoastal waterfront meeting room, 177-space parking garage and waterfront deck with docks that can be expanded for added food and beverage operations. The building includes independently owned condominiums that are not a component of the hotel’s operations. Chatham estimates it will acquire the property at a year-one net operating income capitalization rate in the 7.0 to 7.5% range.
“These hotels are in very strong markets with RevPAR within the Boston Dedham and Ft. Lauderdale Intracoastal hotels’ markets up 17% and 11%, respectively, year-to-date through June 2015,” said Dennis Craven, Chatham’s COO. “Supplementing the strong embedded RevPAR growth, we believe there are incremental value-enhancing opportunities at each hotel through transitioning management to Island Hospitality Management (IHM), potentially adding rooms to the Boston Dedham hotel and adding waterfront amenities to the Fort Lauderdale Intracoastal property. Accordingly, we expect our stabilized returns post year one to be in the upper-single-digit range.”
Chatham funded the Dedham purchase with available cash and borrowings on its revolving credit facility, and expects to use the same sources for the Fort Lauderdale Intracoastal acquisition. Both hotels will be managed by IHM, which is 51% owned by Fisher.