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The Hotel Group Inc. Sells the 317-room Knoxville
 Hilton for $21 million; Offer Too Good to Pass Up
By Roger Harris, The Knoxville News-Sentinel, Tenn.
Knight Ridder/Tribune Business News

Dec. 9, 2004 - --The Knoxville Hilton has been sold for $21 million to a Colorado real estate investment and management company.

J. Herzog & Sons Inc. of Denver bought the 317-room downtown hotel from The Hotel Group Inc., an investment group based in the Seattle area, according to documents filed Wednesday with the Knox County Register of Deeds office.

The hotel will remain a Hilton franchise, but the new owners will spend a "substantial" amount on improvements, said Martin Herzog, CEO of J. Herzog & Sons.

"We will make it better," Herzog said. "It's a fabulous location, and we want it to be the quintessential place where people will want to stay when they're in Knoxville. We will be investing a lot of time and money into the hotel."

Herzog declined to say how much the company would spend upgrading the 23-year-old hotel.

"We do not make those numbers public, but it will be a substantial investment," Herzog said.

"We want to improve the dining experience and make sure the building's mechanical systems are upgraded. We will put in better heating and cooling systems for rooms and improve the elevators."

Herzog is especially interested in upgrading the hotel restaurant.

"We want to create a fine dining experience. We want it to be a place people will go out of their way to go to," Herzog said.

Knoxville developer Nick Cazana, who owns the Hilton Hotel parking garage, said the hotel's sale price shows the strength of the central business district's commercial real estate market.

"It speaks highly of downtown," Cazana, president of Commercial & Investment Properties Co., said Wednesday.

Cazana continues to own the parking garage and leases parking spaces to the hotel's new owner.

The seller -- Edmonds, Wash.-based Hotel Group -- put together an investment group that bought the Hilton in March 2003 for $11 million. The group spent $4.8 million upgrading the look of the hotel and adding a Starbucks Coffee retail store in the lobby.

Hotel Group President Doug Dreher said he has a bit of seller's remorse but that Herzog's offer was too good to pass up.

"It really was an opportunity we couldn't refuse from the offer standpoint," Dreher said.

The Knoxville Hilton's occupancy rate had improved in the past year and the Washington investors would have been happy to hang on to the property if the deal with Herzog had fallen through, Dreher said.

The Hotel Group bought the Knoxville Hilton from Cleveland, Ohio-based Boykin Lodging Co., a real estate investment trust that owned the property since 1998.

Herzog & Sons has a diverse nationwide real estate portfolio that includes 5 million square feet of retail space, mostly shopping centers and malls. The company also buys mineral rights and oil well interests and other properties, according to its Web site.

The Knoxville Hilton is the company's first hotel investment.

"We spent three years looking for the right situation for our first hotel," Herzog said. "This asset is so unique. And I really love downtown Knoxville. I can see how it's only going to get better."

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(c) 2004, The Knoxville News-Sentinel, Tenn. Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail HLT, SBUX, BOY,

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