Host Hotels & Resorts, which touts itself as being the nation's largest lodging real estate investment trust, has bought its first hotel in Austin, Texas, in an "off-market, opportunistic" deal before a lender auction for the hotel next month.
Host Hotels, based in Bethesda, Maryland, bought the Hyatt Regency Austin, a 17-story, 448-room hotel at 208 Barton Springs Road along the shores of Lady Bird Lake near downtown Austin, for $161 million in cash, or about $359,375 per room, according to a statement from the company. The price tag represents a 20% to 25% discount to pre-COVID-19 pricing based on comparable publicly disclosed hotel sales, according to Host Hotels.
Host Hotels was able to make the deal before the foreclosure auction because of its long-standing relationships in the lodging industry, its reputation and its relationship with Hyatt, Host Hotels officials told investors in a presentation. The REIT's ability to execute the deal quickly with existing liquidity also helped, officials said. The foreclosure auction will no longer take place, said Harvey Strickon, a lawyer with Paul Hastings law firm representing the lender in the auction.
Hyatt will continue to manage the hotel as part of an existing long-term management agreement.
Host Hotels President and CEO James Risoleo said the purchase will raise the REIT's earnings growth profile and enhance the geographic diversification of its portfolio of 76 U.S. hotels with mostly luxury and upper-upscale hotels and five international hotels totaling about 46,800 rooms with the addition of Austin, a market with "a thriving economy and a young and vibrant population."
Austin, which is hosting its annual South by Southwest tech, film and music festival online this week because of the ongoing pandemic, has become a destination for top tech companies, including Oracle, Tesla and Digital Realty Trust, to expand in the region. That migration has also generated real estate investment interest from national investors.
"As travel resumes, we expect the well-located Hyatt Regency Austin to benefit from a strong rebound led by Austin’s multiple leisure and business demand drivers that are anchored in world-renowned music festivals, sporting events and blue-chip corporations," Risoleo said.
When the hotel's foreclosure auction was announced earlier this month, Art Buser, a 40-year hotel investment broker and founding partner of Dallas-based Goodwin Advisors, said it was a rarity given the investor interest in Austin and fewer financially troubled properties hitting the market than originally expected at the beginning of the pandemic. Buser, who was not involved in the Austin hotel deal, said he expects to see more hotel sales than foreclosures with the growing optimism in the rebound of the tourism industry.
The Hyatt Regency Austin sits on nearly 6 acres of park-like land along Lady Bird Lake with scenic views of the city's downtown skyline and is within walking distance of the South Congress entertainment district.
"Additionally, we are encouraged by the reported contraction in Austin’s hotel construction pipeline relative to pre-pandemic levels and by the market’s significantly lower hotel operating costs compared to other markets," Risoleo said in the statement.