Lone Star squared

Lone Star Funds has acquired Lone Star Steakhouse & Saloon for more than $600 million (€465 million). The Wichita, Kansas-based chain has lagged behind competitors like Outback Steakhouse in the fast-growing steakhouse sector.

The Dallas-based private equity investor, led by managing partner John Grayken, will pay $27.10 per share for the restaurant chain, a 15 percent premium over the stock's August 17 closing price. The deal is expected to be completed in the fourth quarter of this year.

The restaurant company owns and operates 222 of its flagship Lone Star Steakhouse & Saloon eateries across the US, as well as 40 others under different brand names including the Sullivan's, Del Frisco's Double Eagle and Texas Land & Cattle steakhouse chains. According to SEC filings, the company owns approximately twothirds of its restaurant locations.

Despite growth in the steakhouse sector, which has outpaced overall restaurant industry growth, same store sales at the chain's flagship has fallen 2.2 percent so far this year. “They really have been among the slower growers by far,” said Ron Paul, president of Chicago-based restaurant consultancy Technomic. Oftentimes, deals like this lead investors to re-negotiate leases or to exit some markets, which could mean selling off assets, he said.

During the period it held troubled family restaurant chain Shoney's, Lone Star slashed the number of outlets by nearly a third and sold off a growing subsidiary, the Captain D's seafood chain. In 2002, Lone Star bought everything under the foundering Shoney's umbrella for $18 million and the assumption of $255 million in debt, selling it for an undisclosed sum to Centrum Equities in July.

“We have a history of buying well-known brands and we believe Lone Star Steakhouse & Saloon is a great addition to our portfolio,” said Len Allen, president of US operations for Lone Star Funds, in a statement.

As for the Lone Star Steakhouse chain, the company had previously agreed to a buyout by investment firm Bruckmann, Rosser, Sherrill & Co. for $579 million in cash in 2002. That deal, which would have led to the exit of founder and chief executive Jamie Coulter, fell through after some stockholders were critical of the offer. Coulter called the offer from Lone Star Funds “in the best interests” of the company's shareholders, according to a statement.

“One way or another, it doesn't look like it's a growth chain story, so it's got to be a value play,” Technomic's Paul said of the deal.

Morgan Stanley buys office REIT
Morgan Stanley Real Estate has acquired San Mateo, California-based Glenborough Realty Trust for $1.9 billion (€1.5 billion), including debt, in the latest acquisition of a large REIT by a real estate buyout fund. Buyouts of office-focused REITs have been on the rise as rents go up and occupancy rates fall in the sector. Private equity giant The Blackstone Group and Brookfield Properties bought Trizec Properties, one of the largest commercial landlords in the US, and its Canadian affiliate for $8.9 billion in June.

JV acquires Chicago landmark
A joint venture composed of San Francisco- and New York-based Fremont Realty Capital, San Francisco-based Shorenstein Properties and real estate investor Mark Karasick has purchased 311 S. Wacker Drive, which they describe as one of “Chicago's skyline trophies.” The purchase price was not disclosed, but a source familiar with the deal placed it at $300 million (€234 million). 311 S. Wacker was the world's tallest reinforced concrete building when it was completed in 1990. The 65-story building contains almost 1.3 million square feet of Class A office space, approximately a quarter of which is vacant.

Fortress buys Intrawest
New York-based alternative investment firm Fortress Investment Group has agreed to buy Intrawest, a Canadian travel and resort company that owns prominent Vancouver ski venue Whistler Blackcomb, for $2.8 billion (€2.2 billion), including debt. In addition to Whistler Blackcomb, which will be among the host venues for the 2010 Winter Olympics, Intrawest owns nine other ski resorts in North America. The company also operates the world's largest heli-skiing outfit, a private resort club called Club Intrawest and Florida's Sandestin Golf and Beach Resort.

JER expands hotel platform
JER Partners has acquired limited-service hotel operator Jameson Inns in a deal valued at approximately $371 million (€290 million), through a joint venture with Atlanta-based Longhouse Hospitality, in which the firm holds an interest, strengthening its presence in the hotel sector in the Southeast and the Midwest. The Jameson portfolio more than triples the number of hotels Longhouse holds, adding 107 primarily limited-service hotels with a total of 7,550 rooms to it its existing portfolio.

Walton Street in two Florida deals
A joint venture between Walton Street Capital and Chicago-based Higgins Development Partners has acquired a one-million-square-foot warehouse and office facility outside Hialeah, Florida and 27.3 acres of adjacent, undeveloped land for $90 million (€70 million), according to reports. The deal may represent South Florida's industrial deal this year, according to the Miami Herald. In related news, Walton Street has also reportedly purchased another Florida property: the PGA National Resort and Spa in Palm Beach Gardens.