REIT sells downtown Hilton for $143 million

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The 821-room Hilton Minneapolis – Minnesota’s largest hotel – has sold for $143 million, about $9 million less than its purchase price in 2010.

Increased competition from new hotels in and around downtown Minneapolis may have factored into the lower purchase price, one Twin Cities-based market observer said.

Chicago-based Walton Street Capital is the buyer of the 25-story hotel at 1001 Marquette Ave. in downtown, Walton Street managing principal Eric Mogentale confirmed in an email Tuesday. The private equity real estate firm “focuses on the acquisition and management of institutional quality assets in the desirable major markets and secondary growth markets,” according to Walton Street’s website.

The seller is Bethesda, Maryland-based DiamondRock Hospitality Co., which announced the sale in a July 14 press release.

A certificate of real estate value had not become public as of Tuesday.

DiamondRock Hospitality paid $152 million for the property in 2010 plus an additional $3.5 million left on the seller’s mortgage, according to Finance & Commerce records. Hennepin County property records show an estimated market value of $139.2 million.

The 2016 purchase price works out to $174,177 per room.

The sale is the largest Twin Cities hotel transaction this year, and comes at a time when more than 1,500 new hotel rooms are proposed, under construction or  have been completed in or near downtown Minneapolis since 2013, according to Finance & Commerce’s online Hotel Development and Sales Tracker.

Built in 1992, the Hilton Minneapolis sits on a block bounded by Marquette Avenue, 11th and 12th streets and Second Avenue. It offers about 77,000 square feet of meeting space.

DiamondRock Hospitality, a real estate investment trust, wasn’t immediately available for comment Tuesday. In its press release, the REIT said it “improved its portfolio quality with the recent sales of the Hilton Minneapolis and the Orlando Airport Marriott, which ranked at the bottom of the portfolio as measured by average RevPAR.”

The hotel’s RevPAR, or revenue per available room, during the fourth quarter of 2015 was $118.71, according to a February press release from DiamondRock Hospitality. That was up from a RevPAR of $93.63 in the same period in 2014. RevPAR is calculated by multiplying a hotel’s average daily room rate by its occupancy rate.

The Twin Cities metro area RevPAR during that same period was $79.04, according to the Compass Report, published by Bloomington-based Cushman & Wakefield/NorthMarq.

When DiamondRock bought the Hilton in 2010, it was expected to generate $13.3 million of annual earnings before interest, income taxes, depreciation and amortization, or EBITDA. In 2015, the hotel had an EBITDA of $13.7 million, according to a July report filed with the Securities and Exchange Commission.

Despite that steady stream of revenue, the hotel landscape in and around downtown Minneapolis is more crowded now than it was six years ago, said Steve Sherf, president of the Excelsior-based Hospitality Consulting Group.

“I think the level of competition has probably increased now versus what it was back in 2010,” Sherf said. “With the newer hotels under construction and those proposed, the downtown market is probably going to get diluted a bit.”

The hotel’s occupancy rate during the fourth quarter of 2015 was 77.4 percent, up from 65.7 percent from the prior year, according to DiamondRock’s SEC filing.  The metro-wide occupancy rate was 70 percent during the same period in 2015, according to the Compass report.

The Hilton Minneapolis will continue to stand out because of its flag and the fact that it is “still the headquarters hotel” for conferences and conventions due to its room count and large meeting space, Sherf added. “It gives them a market segment that some of the others downtown don’t have.”

Before DiamondRock’s purchase in 2010, the hotel sold in 2006 for $92 million to a joint venture between Potomac, Maryland-based Haberhill LLC and the Greenwich, Connecticut-based Starwood Capital Group.

This is Walton Street Capital’s only Minnesota hotel asset, Mogentale said.

He said Walton Street is a lender in the Marquette Hotel deal at the IDS Center, which Austin, Texas-based JMI Realty purchased in January for $74.5 million. The purchase price worked out to $265,125 per room.

Walton Street has been active in the Twin Cities apartment market. In November 2015 Walton Street sold three suburban apartment complexes for $78.1 million in a portfolio sale to Washington-based Weidner Apartment Homes, according to Finance & Commerce records.

Related content:

• Maryland REIT to buy Hilton Minneapolis
• Hotel Development and Sales Tracker
• Austin investor buys Marquette Hotel in IDS Center
• Washington buyers fork over $78.1M for apartment complexes