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Inland American Real Estate Trust Inc. Paying $920 million
 for an Affiliate of the RLJ Development LLC
By Susan Diesenhouse, Chicago TribuneMcClatchy-Tribune Regional News

Sep. 21, 2007 - Cash-rich Inland American Real Estate Trust Inc. of Oak Brook has agreed to pay about $920 million for an affiliate of the largest African-American-owned hotel investment company in the nation, RLJ Development LLC.

RLJ Urban Fund is among the lodging investment vehicles founded by Thomas J. Baltimore Jr. and Robert L. Johnson, who started the Black Entertainment Network.

RLJ Development owns about 130 hotels across the country, valued at about $3.5 billion. Among its properties are RLJ Urban's 22 hotels that carry the flags of Hilton and Marriott. In Chicago, RLJ Urban owns the Marriott at the University of Illinois-Chicago Medical District, 625 S. Ashland Ave.

"We're pleased to have signed a contract with Inland, which is still conducting due diligence, and we expect the transaction to move forward in due course," Baltimore, president of RLJ Development, said Thursday.

Inland American, a member of the privately held Inland Real Estate Group of Cos., anticipates the deal will close by year's end, said a spokesman.

"This is a great way to acquire a collection of hotels that are fairly new, are the best brands in the industry and are located in places with relatively high barriers to entry," said Bruce Ford, a senior vice president at the research firm Lodging Economterics Inc. in Portsmouth, N.H.

The timing of the sale is good for RLJ, Ford noted.

"Hotels are probably topping out in terms of value," he said.

It's also good for Inland American, he said, because "industry operating performance is very good and expected to remain so for another two years."

During a time when real estate financing is very scarce, Inland intends to pay $460 million in cash and will consider leaving RLJ Urban's debt in place, according to a Securities and Exchange Commission filing, which did not specify the amount of debt.

However, the filing said that "in light of the recent volatility in the financial markets generally, and the commercial lending market in particular," there is no assurance Inland will be able to "leave existing debt in place on terms" that it deems acceptable or that the deal will close.

Times aren't quite as tough for Inland and RLJ as for some others in real estate because these two companies historically have used modest amounts of debt for their transactions. Inland Real Estate Group has $17 billion in assets under management.

But "the credit crunch is a real issue in all parts of the commercial real estate industry," said Baltimore. "Essentially, it's a repricing of risk."

Although RLJ is the seller in this deal, the liquidity problem in financial markets has not stopped it from buying.

"We are still a very active buyer and are very bullish on the hotel industry," Baltimore said.

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sdiesenhouse@tribune.com

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