The Real Deal New York

Pebblebrook sells two hotels to Highgate and LeFrak

Maryland-based REIT unloads properties following $5.2B LaSalle Hotel merger
By Rich Bockmann | December 03, 2018 04:15PM

870 7th Avenue and Richard LeFrak with 15 Gold Street (Credit: Google Maps)

Following the contentious bidding war with investment giant the Blackstone Group for control of LaSalle Hotel Properties, Pebblebrook Hotel Trust sold two of its New York hotels to Highgate Hotels and the LeFrak Organization as it trims its portfolio.

Highgate’s Mahmood Khimji (left) and Mehdi Khimji (Credit: Kelly Taub/BFA.com)

The deals were the first phase of the Maryland-based real estate investment trust’s plan to sell between $750 million and $1.25 billion worth of LaSalle legacy hotels over the next six to twelve months following the companies’ $5.2 billion merger, Pebblebrook announced Friday.

“Our completed property sales demonstrate our ability to quickly execute on our strategic disposition program,” Pebblebrook chief investment officer Thomas Fisher said in a prepared statement.

Pebblebrook last week announced it sold five hotels for a total of $820.8 million in New York City, San Francisco and Philadelphia in connection with finalizing its merger with LaSalle.

While the company did not identify the buyers, sources told The Real Deal that Highgate Hotels bought the Park Central New York at Seventh Avenue and West 55th Streets.

While it wasn’t clear how much Highgate paid for the hotel at 870 Seventh Avenue – a property that also includes the WestHouse New York Hotel – Pebblebrook said the combined sale with its sister property in San Francisco totaled $715 million.

A representative for Highgate did not immediately respond to a request for comment.

The Park Central purchase marks the return to the property for Highgate, which sold the 934-room hotel that it had owned in partnership with Goldman Sachs to LaSalle for $396.2 million in late 2011.

Highgate, headed by brothers Mahmood Khimji and Mehdi Khimji, still maintains its New York offices at the hotel and managed both the Park Central and WestHouse properties for LaSalle.

As hotel investors, and in particular real estate investment trusts, have been selling off properties at a rapid clip in recent years, Highgate has arguably become the most active buyer in New York City.

The company in May bought the W Hotel New York on Lexington Avenue in partnership with Capstone Equities for $130 million.

And between December 2016 and December 2017, the company bought the 600-plus-room Affinia Manhattan, the Royalton New York, the Nyma and the Gansevoort Park Avenue.

Sources said Pebblebrook negotiated the sale directly with Highgate.

In the other New York deal, the LeFrak Organization paid $38 million to buy the 130-room Gild Hall hotel at 15 Gold Street, sources told TRD. A representative for LeFrak did not immediately respond to a request for comment.

The deal represents a loss on the books for LaSalle. The company paid $50.47 million in 2006 to buy the hotel from RD Management, which developed the property in 1998.

It’s the second deal in recent memory between Pebblebrook and Lefrak, which last year bought the bought the 252-key Dumont Hotel in Midtown from Pebblebrook for $120 million.

Eastdil Secured marketed the Gild Hall on behalf of Pebblebrook. A representative declined to comment.

Maryland-based Pebblebrook on Friday announced it had completed its merger with LaSalle, and now has a portfolio of 64 properties in 18 markets.

In addition to the New York and San Francisco deals, the company also sold the Embassy Suites Philadelphia Center City for $67 million. Pebblebrook is not currently marketing any other New York Properties.