For New York University's annual International Hospitality Industry Investment Conference, the Millennium transaction, backed by a $400 million loan led by two German banks and secured with a $100 million funding guarantee by Marriott International, was a powerhouse move, head and shoulders above any other industry transaction in the past twelve months. So it is that Millennium has been honored for pulling off the "Deal of the Year", conferred at the 23d annual IHIIC gathering at the Marriott Marquis Hotel in New York City. (Chaired by Loews Hotels chairman and CEO Jonathan Tisch, the three-day NYU Conference, sponsored by the Preston Robert Tisch Center for Hospitality, Tourism and Travel Administration, is the premier forum in the lodging industry.)

Millennium is currently developing with the two leading names in deluxe hotels, The Ritz-Carlton and Four Seasons. The company has a total portfolio of more than $3 billion in mixed-use lodging, retail and residential real estate under construction nationally, including new Four Seasons hotels and residences in Miami and San Francisco.

But it was the scale and creativity of the recent Ritz-Carlton financing that was singled out by the IHIIC for having "the most impact on the lodging industry during the past year." Indeed, the deal gives Millennium ownership of 1,450 Ritz-Carlton rooms, including 1,167 brand new to market (the six-property acquisition includes the legendary 280-room Ritz-Carlton, Boston, the oldest R-C in North America, which marks its 75th anniversary next spring following a complete interior/exterior restoration). The other properties included in the acquisition financing are:

• The Ritz-Carlton, New York (formerly the St. Moritz on Central Park South, 287 rooms; opens Winter 2001/2) 

• The Ritz-Carlton, Downtown New York (located in Battery Park City, 298 rooms; opens October, 2001) 

• The Ritz-Carlton, Boston Common (across the street from the historic Common, 191 rooms opens Sept. 2001) 

• The Ritz-Carlton, Washington, DC (located in the West End, 300 rooms and already open) 

• The Ritz-Carlton, Georgetown (91 rooms; opens June, 2002) 

While Millennium takes a long view of the lodging market - its investment horizon in the Ritz-Carlton properties is up to ten years- the company could be credited with smart timing. According to the latest PricewaterhouseCoopers analysis issued last month, the US hotel segment is poised to undergo a healthy uptick in 2002, fueled by a projected rebound in corporate travel and family vacations and also by a sharp pull-back in new construction. Millennium notes historical data that shows only three years out the last 20 when five-star hotels in prime destination cities showed a decline in demand. "The corporate and high-end vacation travelers that The Ritz-Carlton serves

The Ritz-Carlton Hotel and Residences is Millennium Partners' introduction to luxury mixed-use living in the heart of the nation's capital. The Ritz-Carlton, The Sports Club/LA, Washington, D.C. fitness complex, and access to retail stores and restaurants are designed to provide first-rate services and amenities to the luxury condominiums, as well as the surrounding community. The luxurious property includes 10 stories and showcases a cascading waterfall within a 30,000 square foot courtyard.

Mixed-Use Blending Creates Tremendous Real Estate Premium

Two of the hotels (Boston Common and Washington) feature 100,000-square foot athletic facilities operated by Sports Club/LA, while the twin-towered Boston Common project will also boast a 19-screen, 4,700- stadium seat cineplex with reserved seating, managed by Loews; when it opens at the end of June it will be Boston's first major downtown theater in 30 years. The Boston Common property is also introducing the first Ritz-Carlton extended-stay lodging product, with 63 one- and two-bedroom apartments featuring appliance-rich kitchens and other comforts for long-term stays.
 

Makings of Deal of the Year

The five-year acquisition loan was arranged by Dresdner Bank, and co-underwritten by Dresdner and DePfa Bank AG. Mr. Jeffries noted that Dresdner has financed more than $1 billion in Millennium real estate over the last five years. Also participating was a consortium of international banks: The Royal Bank of Scotland, plc., Hamburgische Landesbank; Landesbank Berlin; Norddeutsche Landesbank; Deutsche Postbank AG; Investkredit Bank AG; MidFirst Bank; Sovereign Bank, and BNP Paribas. There is a one-year extension option to the loan, which closed December 26, 2000.

The $400 million bank facility actually covered only 60% of the acquisition costs of the hotel portfolio, valued in excess of $700 million. The remaining 40% was funded by equity capital contributed by Millennium and its partners.
    
Part of the motivation behind the deal was Millennium's interest in realigning its equity partners. Some of the developer's partners, who had financed the construction of the hotels as a portion of larger projects, were approaching the end of their investment horizons and could not participate in a longer-term project.  Others saw the Ritz-Carlton transaction as a prime opportunity to refinance at attractive rates a portfolio of world-class lodging assets that are unlikely to be duplicated.

Thus was formed a new equity investment vehicle, MPE Hotel I LLC, capitalized by Millennium principals along with the subsidiaries of two major German life insurers: ERGO (through its subsidiary Victoria), and Provinzial Lebensversicherungsantalt der Rheinprovinz.

In addition to a solid equity base, Millennium gained the support of Marriott International, which committed a $100 million debt-service guarantee to the loan. "Marriott's contribution to the deal was invaluable - as the parent company of Ritz-Carlton, Marriott, in essence, was pre-committing to the success of the hotels by backing their future cash flow," said Mr. Jeffries. "That level of confidence is extremely satisfying, but it also reflects the importance Marriott is placing on these hotels, which stand for a new breed of Ritz-Carltons in the United States. Similarly, we believe these projects represent a new model for branded real estate in three of the country's finest downtown markets."

A Decade of Mixed-Use Trophies

In earning the IHIIC "Deal of the Year" honors, Millennium joins some elite company. Previous winners include Starwood Hotels for its acquisition of ITT Sheraton, last year's merger between Hilton and Promus Hotels, Paul Whetsel for the creation of Merister Hotels & Resorts, Bill Marriott, Jr. for leading Marriott's acquisition of Renaissance, and Henry Silverman as chairman of Cedant. The NYU conference draws more than 1,500 senior lodging industry executives, with representation by every major player.

"It's immensely satisfying for us to receive this award since it represents the ultimate recognition from an industry we have only come to work with in the past several years," said Mr. Jeffries. A former lawyer, Mr. Jeffries founded Millennium in 1990 with partners Philip Aarons and Philip Lovett to develop an underused stretch of Broadway near New York's Lincoln Center.

Combining high-end apartments right next to blockbuster sports, entertainment and retail facilities branded by Reebok, Sony Theatres, Barnes & Noble, Tower Records, Eddie Bauer and others, Millennium scored a huge, unanticipated success with its Lincoln Square project. The 1.7 million square-foot development has since become a model for the best in urban mixed-used development, revitalizing a once-empty streetscape and creating a much broader commercial destination for the Lincoln Center area.

"Lincoln Square made it clear to us that density is a very desirable thing in the creation of high-end urban real estate - you want your neighborhoods to feel energized and commercialized," Mr. Jeffries explained, adding that Lincoln Square had the added advantage to sitting close to both Central Park and the Lincoln Center stages.

In the last several years, Mr. Jeffries and his partners saw an opportunity to create similar high-impact, multi-use cityscapes built around deluxe hotels, which can be magnets in their own right. "Ritz-Carlton and Four Seasons represent the very best in guest services - their hospitality and level of amenities are perfectly compatible with a residential offering or a sports club, while their brands create a major value-added to the condominiums," Mr. Jeffries said.

Nor is Millennium's relationship with the lodging industry near complete, even with some eight large projects currently coming together on both coasts. "We will be announcing additional partnerships in coming weeks and hope that before too long we might be back in the running for future deals of the year," he said.