Strategic Hotels to Buy Jumeirah Essex House for $362 Million

08/17/2012| 11:10am US/Eastern

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   By Saabira Chaudhuri 
 

Strategic Hotels & Resorts Inc. (>> Strategic Hotels & Resorts Inc.) has agreed to buy Jumeirah Essex House, an 81-year-old Midtown Manhattan hotel, from the Dubai Investment Group for about $362 million.

The purchase price includes 509 hotel rooms, nine condominium units and cash reserves. Without the acquired cash reserves, the transaction equates to a purchase price of about $685,000 per unit, based on 518 total units.

Strategic Hotels said it will pay for the acquisition through a mixture of cash in hand and $190 million in first-mortgage financing from Bank of America Corp. (>> Bank of America Corp). The company is also evaluating joint venture options, asset sales and other capital sources to fund the rest of the acquisition.

Strategic Hotels also said it has signed a 50-year management agreement with Marriott International Inc. (>> MARRIOTT INT'A') to rebrand the hotel as the JW Marriott Essex House New York.

Under the deal's terms, Marriott will guarantee the net operating income of the hotel up to $21.5 million per year for a period of eight years, subject to a maximum funding by Marriott of $14 million in 2013 and $12 million in each year from 2014 to 2020.

Total cumulative funding by Marriott is capped at $40 million.

Upon closing, Strategic Hotels plans to invest about $18.3 million in various property improvements, including renovations and systems upgrades, as well as new signage and other branding efforts to distinguish the property under the JW Marriott flag.

The transaction is expected to close on or before Sept. 7.

An affiliate of Strategic Hotels previously owned the Essex House Hotel but sold it to the Dubai Investment Group in 2005 for about $440 million.

Strategic Hotels is a real estate investment trust that owns--and manages the assets of--hotels and resorts in the U.S., Mexico and Europe. It recently reported swinging to a second-quarter loss on a tough comparison with a year-ago period that included a $101 million gain on a property sale.

Strategic Hotel's shares were flat at $5.94 in recent trading. The stock is up 18% in the past 12 months.

Write to Saabira Chaudhuri at saabira.chaudhuri@dowjones.com

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