Cherry Cove Group paid $7.4 million for the Stay Inn West Palm Beach Airport Hotel, with plans to update it and bring in a new franchise brand, as investor demand in the South Florida hospitality market remains strong.
The sale of the 135-room hotel, at 1505 Belvedere Road also includes an adjacent freestanding International House of Pancakes restaurant. Including the restaurant, the sale breaks down to $54,815 per room.
For Lexington Park, Maryland-based Cherry Cove, which owns hotels and other commercial property in Maryland, the deal represents its first investment in Florida, Colliers International South Florida Executive Vice President Rich Lillis told The Real Deal.
Lillis and Colliers International broker Kent Schwartz represented the seller, a partnership between Marx Realty and Benenson Capital, which placed the hotel on the market in April.
The brokers also procured Cherry Cove as the buyer. Lillis said. “They look at Florida as being a growth market for them, and they like the dynamics of the Florida market,” he said.
As key to its investment strategy, Cherry Cove will convert the hotel, which runs 75 percent annual occupancy, to an international franchise flag, Lillis said. “They will transition from a Stay Inn to a brand, and in order to do that, they will be investing in the property to bring it up to the brand’s standard,” he said.
The three-story hotel, on 3.21 acres, was built in 1986 and operated as a Hampton Inn before converting to a Best Western in 2007. In 2011, the hotel converted to Stay Inn, a proprietary brand of third-party manager Island Hospitality.
The triple-net leased IHOP restaurant, with 6,000 square feet and 160 seats, also adds to the deal by providing rental income. The lease has less than five years remaining, Lillis said.
The hotel market in South Florida continues to be attractive to investors, despite a tighter underwriting market, increasing rates for financing and rising supply in some areas, he said. Growth in new hotel supply in the West Palm Beach/Boca Raton market is projected to range from 1.1 percent to 1.9 annually through 2019, below the national average.
“There’s still is a ton on interest in South Florida,” Lillis said. “It’s perceived to be a very strong market and there is a lot of equity in the market that is looking for deals.”
Two new hotels have opened in downtown West Palm Beach in the past two years, and another 11 projects have been approved by city officials or are in the planning stage. A 152-room Marriott Residence Inn opened at 455 Hibiscus Street in February 2015. And a 400-room West Palm Beach Hilton opened next to the Palm Beach County Convention Center at 600 Okeechobee Boulevard opened in January.