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HEI Hospitality Has Closed on a $425 million Discretionary
Private Equity Fund to Primarily Acquire Full-serviceHotels 
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Company Targets $1.5 Billion of Investments over Next Three Years

NORWALK, Conn., February 16, 2006 — HEI Hospitality, a rapidly growing hospitality investment and operating company, today announced that it has closed on a $425 million discretionary private equity fund to primarily acquire hotel-related assets.  A portion of the fund also may be invested in hotel-related development opportunities and vacation- or leisure-oriented residential product.  Combined with prudent debt leverage, the company expects to invest approximately $1.5 billion in assets over the next three years.  Investors in the new fund are primarily comprised of major institutional investors and principals of HEI.

“HEI acquired more than $1.5 billion in hotels over the past 36 months,” said Gary Mendell, chairman and chief executive officer of HEI Hospitality.  “We believe the outlook for hotel investment remains quite positive.  Our most recent fund, which will allow us to acquire approximately $1.5 billion in assets over the next 36 months, was originally targeted at $350 million but became over-subscribed.  We continue to target investing approximately $500 million per year and are gratified by our investor’s confidence in us.”

Mendell noted that the company has significantly expanded its acquisition team to oversee placement of this new fund.  “We also recently created a development team to seek opportunities to build premium-branded, select-service hotels, upscale full-service hotels and highly selective opportunities in vacation- or leisure-oriented residential properties.” 

“HEI now has 13 professionals focused on our acquisition effort, one of the largest teams in the industry dedicated primarily to hotel-related real estate,” said Steve Mendell, HEI’s executive vice president — acquisitions and development.  “Our size and depth of experience have resulted in an extremely efficient process.   We have the necessary resources to complete thorough due diligence prior to making an offer, which allows us to close quickly once we have agreed to terms with the seller.  This speed and flexibility, combined with the talent of our team in creatively structuring transactions, give us a substantial competitive advantage in negotiations.”

“As with the $275 million private equity fund we closed in May, 2004, HEI’s primary focus for this new fund will remain on acquiring upscale, first-class, full-service hotels, typically ranging in size from 200 to 500 rooms in the top 50 MSAs in the country,” said Clark Hanrattie, senior vice president and chief investment officer. 
 Merritt Hospitality, a wholly owned HEI subsidiary, will be the company’s preferred operator, but the company may acquire hotels managed by others if the returns are justified. 

“Industry experts forecast a positive outlook for the hotel industry for at least the next several years,” Gary Mendell said.  “We have been one of the largest private acquirers of hotel real estate in the past three years, and we expect to continue that pace into the foreseeable future.  Our strategy is to be a long-term owner combined with strong property management.  We will seek to maximize profits through strategic investments in our hotels to keep them among the most competitive within their respective submarkets.  We also recently significantly strengthened what already was a first-class hotel management team to provide even greater focus on superior guest satisfaction.”

HEI Hospitality, headquartered in Norwalk, Conn., is an ownership/investment firm that owns and/or operates 26 first-class and full-service hotels throughout the United States under such well-known brand names as Marriott, Sheraton, Westin and Hilton.  Merritt Hospitality is an independent hotel management company and a wholly-owned subsidiary of HEI Hospitality.

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Contact:

Gary Mendell
HEI Hospitality
 (203) 849-6065

Also See: Clark Hanrattie Joins HEI as Senior Vice President and Chief Investment Officer / January 2004
HEI Hospitality Wraps Up $1.5 Billion, Three-Year Hotel Acquisition Program; Adds Four Senior Execs to Support Acquisition and Development Activity / January 2006

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