Cerberus strikes $1.3b hotel exit

The New York-based investment firm has agreed to sell its majority stake in the Innkeepers portfolio to a joint venture between NorthStar and Chatham.

Cerberus Capital Management has reached an agreement to sell its majority interest in a 51-property US hotel portfolio to a partnership between NorthStar Realty Finance and Chatham Lodging Trust for a gross purchase price of $1.3 billion. Under the deal, the New York-based private equity firm will sell its 89.7 percent interest in the hotel joint venture to NorthStar, according to a press release. NorthStar will pay approximately $213 million in equity for the interest, while Chatham will retain its 10.3 percent ownership stake. Cerberus could not be reached for comment at press time.

The NorthStar/Chatham joint venture will buy 47 of the hotels – totaling 6,100 rooms – for a gross purchase price of $958.5 million. Meanwhile, Chatham will acquire four Residence Inn hotels in California’s Silicon Valley outright from the Cerberus venture for a gross purchase price of $341.5 million. Cerberus originally made its investment in the Innkeepers portfolio on behalf of its fourth private equity fund, Cerberus Institutional Partners IV.

“The Cerberus/Chatham joint venture has been a great partnership and has proven to be a highly successful investment, turning our initial $37 million investment into distributions of approximately $114 million and profits of approximately $77 million, or $2.90 per share, in less than three years,” said Dennis Craven, Chatham’s chief financial officer, in a statement.

The announcement of the sale agreement comes three years after Cerberus and Chatham first won a bankruptcy auction in May 2011 to purchase 64 Innkeepers USA Trust hotels. After an initial deal failed, the joint venture subsequently reached a settlement with the hotel owner five months later to buy the properties for approximately $1.02 billion. The sale allowed the troubled REIT to emerge from Chapter 11 bankruptcy protection.

In January, the Cerberus/Chatham venture began marketing the portfolio for sale. In a statement announcing the sale, Chatham said the portfolio was being offered free of any management contracts and with a $950 million interest-only loan in place. At the time, Jeffrey Fisher, Chatham’s chief executive, said the joint venture already had returned 92 percent of its original capital investment.