Boykin Lodging Company (NYSE: BOY) has acquired an interest in the 421-room Executive Plaza Hotel located on West Wacker Drive, only a block from Michigan Avenue in downtown Chicago. The hotel was purchased for $48 million, or approximately $114,000 per room, which is estimated to be less than half of its replacement cost. This full-service hotel is one of the most visible properties in downtown Chicago.
Boykin’s joint venture with AEW Partners III, L.P. (AEW), an investment partnership managed by AEW Capital Management, L.P., acquired a 75 percent interest in the hotel. The remaining 25 percent interest in the hotel is owned by a private investor. Debt financing in the amount of $30 million was provided by Wells Fargo Bank, NA.
“Patience and perseverance pay off,” said Robert W. Boykin, chairman and CEO of Boykin Lodging Company. “We attempted to purchase the property 18 months ago, but we were unable to reach an agreement. Given the significant slowdown in transaction volume, we were able to purchase the property at an excellent value to us.”
The hotel will undergo a complete renovation of all guestrooms, meeting rooms, and food and beverage facilities during 2000. Once completed, the hotel will compete in the four-star market.
“Although we expect a reduction in the hotel’s room revenues per available room (REVPAR) during the renovation, we are estimating a 15 percent increase in REVPAR over today’s levels after the renovation is completed,” Mr. Boykin said.
Henry Vickers, Director of AEW Partners, L.P., added, “When we formed our strategic joint venture with Boykin in February, we decided to be very patient and wait for a pricing correction. This acquisition meets all of our criteria: a strong growing market, superior location, strong existing cash flow, quality construction, and significant repositioning and upside potential.”
“We have been major investors in downtown Chicago for many years and understand the strength of this market’s diversity and resiliency,” Mr. Vickers said. “Boykin Lodging’s meticulous research confirms that the Chicago hotel market is one of the best in the nation. We are very pleased to have acquired such a strategic property in this market. Once renovated, our product and location will enable us to increase rates. As important, our overall cost structure gives us flexibility if there is a softening of the economy.”
Boykin Lodging Company is a multitenant real estate investment trust which focuses on the acquisition of full-service, upscale commercial and resort hotels. The company currently owns 32 full-service commercial and resort hotels containing a total of 9,110 rooms located in California, Colorado, Florida, Idaho, Illinois, Indiana, Maryland, Minnesota, Missouri, Nebraska, New York, New Jersey, North Carolina, Tennessee, Ohio, Oregon, and Washington.
AEW Capital Management, L.P. serves as investment advisor to institutional and private investors, including some of the nation’s largest corporate, public, and union pension funds, university endowments, and governmental entities. The firm focuses on high-yield equity investing, real estate securities portfolios (REITs, CMBS, and private placements), and the acquisition and management of directly held property portfolios. On behalf of its clients, the firm currently manages approximately $5.9 billion of capital, which is invested in more than $9 billion of real estate nationwide.