A hotel real estate investment trust struck a deal to buy the W hotel in downtown Nashville, Tennessee, in a record sale for the city, placing a big bet on the lodging business returning to full form once the pandemic passes.
Xenia Hotels & Resorts, based in Orlando, Florida, agreed to pay $329.7 million for the W Nashville, which opened a few months ago. With 346 rooms, the deal works out to $950,000 per room, the most ever paid for a Nashville hotel. No other sale has come close, according to CoStar research.
Before the W Nashville sale, the highest per-room price in the past two years came with the June 2020 sale of the 125-room Union Station Hotel in downtown for $448,000 per room, or $56 million, which was considered a discount because the hotel was closed. At least 5,000 hotels across the country temporarily closed roughly two years ago at the start of the pandemic, depressing hotel values. Nashville's hotel occupancy remains below 2019 levels even though leisure tourism is back in the city. The more lucrative convention and meeting business hasn’t fully returned yet but is expected to pick up momentum this year.
That’s the bet Xenia is making. Marcel Verbaas, the REIT’s CEO, said in a statement that the hotel’s earnings potential is strong given its location and the “strong outlook for the market, and our belief that we are in the early stages of a multi-year recovery in demand for luxury lodging."
Xenia said it expects to close on the sale by the end of March and thinks the hotel will be one of its top-performing assets in the years ahead, according to the statement. The hotel will be the REIT's 14th purchase since it went public in 2015 and its first W-branded hotel, according to the statement. Xenia focuses on high-end properties, with a portfolio that includes the Fairmont Dallas, Waldorf Astoria Atlanta Buckhead and the Ritz-Carlton in Pentagon City near Amazon’s East Coast headquarters in Arlington County, Virginia.
Nashville’s Corner Partnership, Chicago-based Magellan Development Group and Florida-based Hospitality Gaming Advisors developed the W Nashville in The Gulch, an area that has been redeveloped over the past two decades at the western edge of downtown Nashville. The area includes hotels, condominiums, apartments, restaurants and retail. The hotel is also close to Nashville Yards, a major redevelopment north of The Gulch that is anchored by an operations center for Amazon.
The W Nashville’s sale marks a striking turnaround in values for hotels in Nashville, one of the 25 largest tourism markets in the country, since the beginning of the pandemic. Downtown Nashville hotel occupancy plummeted to below 10% when most hotels closed in the early days of the pandemic.
High-end hotels that relied on the city’s convention and meeting business suffered the most and for the longest period.
Hotel values declined in 2020 as revenue dried up and owners struggled with loans. In June 2020, Nashville’s Hutton Hotel in the city’s midtown area sold for just under $60 million, a discount and the biggest deal of its kind at the time in the United States. Including furniture, fixtures and equipment, the deal was estimated to be $70 million.
Leisure travel started returning later in 2020 to push occupancy back up, but not enough to make up for the lack of convention and meeting business. Convention business has been returning enough to attract a buyer: New York-based real estate investor and developer The Georgetown Co. bought the Hutton Hotel in January for an undisclosed price. A loan amount of $73.67 million from New York lender Mack Real Estate Credit Strategies was disclosed through a deed of trust filed with the Nashville-Davidson County Assessor of Property, an indicator that the hotel’s value is higher than the sale in 2020.
Hotel occupancy has steadily been rising in Nashville. Before the pandemic, the city had gained a reputation as the place for bachelorette parties. Those roared back in 2021, and there were weeks last fall when Nashville led the country in hotel occupancy, according to data from hotel research firm STR, a CoStar Group company.
October was the best month of the year for downtown Nashville hotels, with an average of 75.5% occupancy and an average daily rate for the year of $261.59, according to STR.
Compared to October 2019, occupancy was down 6.8 percentage points, but the average daily rate was better in 2021 than in 2019. December's occupancy of 60.5% was about the same from December 2019 but it had a better average daily rate.