Aug. 28, 2009--The recession has created opportunities in commercial real estate acquisitions, and Norwalk-based HEI Hotels & Resorts has taken advantage by acquiring the 353-room Hanover Marriott in Whippany, N.J., from Host Hotels & Resorts Inc. for $27 million.

"This marks the first acquisition of our third investment fund, the $515 million HEI Hospitality Fund III LP, which was raised in early 2008," said Steve Mendell, executive vice president in acquisitions. "We will continue to seek top-branded hotels in markets with barriers to new entry that we can acquire at below-replacement cost and which will benefit from improved operations."

HEI targeted the property, one of several that Host Hotels put on the market eight months ago, because of its location among the many biomedical and pharmaceutical companies in northern New Jersey, said Roger Clark, senior vice president of acquisitions at HEI.

"The hotel is centrally located off I-287 and I-84. It's the nexus for that part of the New Jersey market and highways," he said. "The hotel was priced realistically based on cash flow and the forecast for 2009."

Located in Morris County, the Hanover Marriott is less than 30 minutes from New York City and is surrounded by more than 12 million square feet of office space. The hotel is near several Fortune 500 corporate headquarters, including Avis, Wyndham, AT&T and Verizon.

The timing of the purchase is ideal, according to R. Mark

Woodworth, president of PKF Hospitality Research in Atlanta, who said there will be a recovery in lodging demand next year. However, because the practice of price discounting has taken hold, room rates are expected to decline again in 2010.

"While the price paid for the room will remain the most important criteria for most travelers in 2010, the value received will once again factor into the buying decision," Woodworth said in an advance release of the September edition of Hotel Horizons.

Nine consecutive quarters of declining lodging demand will come to an end in the second quarter of 2010, he said.

Clark voiced optimism about a recovery that would show it was the right time to make the acquisition.

"This is the first hotel we've bought in 17 or 18 months. We've been very disciplined. We think in our hold period of five to seven years, the market will recover," he said. "With approximately $500 million of equity in our fully discretionary fund, we intend to be in the vanguard of this wave, surfacing deals that make sense for our investment plans. We have a number of hotels in our pipeline, and expect to acquire between $1 billion and $1.5 billion in hotels and resorts in the coming years."

HEI owns and operates nine full-service Marriott hotels and one Renaissance Hotel, part of the Marriott family.

The Whippany hotel will undergo a $20 million renovation. With high-speed Internet access, the hotel provides 22 meeting rooms, aggregating 18,850 square feet of space, including the largest ballroom in Morris County, accommodating as many as 1,000 guests.

HEI's operations include brand names such as Marriott, Sheraton, Westin, Le Meridien, Embassy Suites and Hilton.

Norwalk hotel company returns to acquisitions hiatus

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