The Bethesda, Md.-based REIT attained the 78-room Residence Inn Atlanta Midtown Historic through a foreclosure sale after the borrower defaulted on the loan in early 2013.
In November 2009, RLJ purchased a mortgage loan collateralized by the Residence Inn for about $5 million, or approximately $64,000 per key. The successful bid, which was equal to RLJ’s basis in the mortgage loan, represents a significantly discount to the hotel’s value.
According to RLJ, the hotel will be closed later this year to undergo a comprehensive renovation that will include upgrades to the guestrooms and public spaces. When the hotel reopens in the third quarter of 2014, it will continue to have the Residence Inn by Marriott flag.
RLJ expects that the total investment, including capital expenditures, will represent a forward capitalization rate of approximately 12% based on the hotel’s 2015 net operating income.
“Our acquisition of this mortgage loan provided us with yet another opportunity to purchase an attractive asset in a key market at a significant discount to replacement cost,” said Thomas Baltimore, Jr., president and chief executive officer of RLJ Lodging Trust. “Our initial investment thesis for this mortgage loan included us owning the underlying real estate. We immediately recognized the value of this asset given its location in such a desirable submarket of Atlanta and the strength of the Residence Inn brand.”
With the addition of this asset, RLJ now owns 150 properties, comprised of 148 hotels and two planned hotel conversions. All of these properties are located in 22 states and Washington, D.C.
Compact full-service hotels typically generate most of their revenue from room rentals, have limited food and beverage outlets and meeting space, and require fewer employees than larger hotels.
“We believe that such premium-branded, focused-service hotels have the potential to provide attractive returns relative to other hotel types due to their ability to generate revenue per room comparable to that of full-service hotels, while providing higher profit margins as a result of a more efficient operating model and less volatile cash flows,” the REIT said on its website.