Nashville wears many hats when it comes to demand generators that interest hotel owners, and RLJ Lodging Trust is banking on the city’s power to draw not only leisure travelers, but business and bleisure ones as well.
RLJ Lodging Trust’s recent purchase of the 21c Museum Hotel Nashville is a bit of a departure for the Bethesda, Maryland-based real estate investment trust, which has a portfolio of hotels concentrated heavily in business-oriented brands such as Embassy Suites and Courtyard by Marriott.
But RLJ President and CEO Leslie Hale said the company’s status as an opportunistic buyer with plenty of available liquidity allowed it to pick up its first hotel in Tennessee.
“A prior buyer fell out of bed, and we were able to jump in and use our balance sheet,” Hale said of the $59 million deal, which amounts to $476,000 per key.
She and other RLJ executives shared insights into the deal on the company's recent earnings call with analysts.
As for payoff, Hale said she expects the hotel to generate revenue per available room “two times our portfolio average,” which sat at $146.05 at the end of the second quarter.
The property — the historic Gray & Dudley Building, built in 1910 and converted into the 21c Museum Hotel in 2017 — sits in downtown Nashville’s Arts District, just a stone’s throw from the Broadway entertainment thoroughfare.
Accor acquired the art-forward 21c Museum Hotel brand in 2018. The brand has been known since its launch for the often avant-garde art installations in public spaces. Nashville’s hotel has exhibition and event space, a spa and Gray & Dudley restaurant, all with art throughout.
RLJ indicated when it made the announcement that it will continue to operate the hotel as a 21c in affiliation with Accor. Hale said that while 21c is a new brand for RLJ, it’s absolutely “right within our wheelhouse and sweet spot when you think about lifestyle.”
The company is in the process of converting two California hotels to Curio Collection by Hilton and one to an independent lifestyle property.
Underwriting the Deal
The deal started coming together for RLJ at the beginning of the second quarter, and Hale said that as always, underwriting reflected the REIT’s “conservative nature,” and the company ensured “pricing was right.”
“The basis in which we’re getting this asset is very attractive if you look at the most recent trades that have happened in the Nashville market and the yield that we’re underwriting to, as well as the fact that it’s accretive on our overall portfolio … and it’s expanding us into a market that we’re not into yet.”
Last month, Pyramid Global Hospitality bought the Cambria Hotel Nashville Downtown from Concord Hospitality Enterprises for $109.5 million. In June, the Conrad Nashville sold for $119 million; and in December, the Hyatt House Nashville at Vanderbilt traded for $75 million to OTO Development, according to CoStar data.
While the 21c brand is not part of the Marriott or Hilton families that form the bulk of RLJ’s portfolio, the company’s Executive Vice President of Asset Management Tom Bardenett told analysts the brand didn’t factor into underwriting as much as the prime location did.
“In light of the location of the asset, and [it having] only 124 rooms, we wouldn’t frankly expect to see a significant difference in valuation” had this hotel carried a Marriott, Hilton or Hyatt brand, he said.
Bardenett said RLJ underwrote the deal thinking about upside coming not only from location and market, but also “our ability for our asset management team to come in and put in place our best-in-class practices around revenue management, driving share within the market, cost structure and ancillary revenue.”
Bardenett also mentioned that while RLJ is “excited about the relationship with Accor,” which carries a short-term management contract on the hotel, “the contract itself has optionality embedded in it.”
Nashville’s Bleisure Draw
Music City’s status as a “seven-day-a-week” urban market that draws leisure and business travelers was the strong selling point on this deal, Hale said.
And she’s not worried about talk that Nashville might be tipping toward oversupply.
“For the last 10 years, demand has been growing at two times supply in the Nashville market,” she said, also citing rising RevPAR numbers.
And it’s not just bachelorettes. Hale pointed to corporate expansion in the area from companies such as Oracle and Amazon, as well as the expansion underway of Nashville International Airport and the public Riverfront Park expansion plan in the works.