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New American Realty Hospitality Trust Buying 126 Hotels For $1.9 Billion


Nicholas Schorsch and william kahane

 

American Realty Capital is a real estate financing engine of growth, one that was founded by Nicholas Schorsch and his partner William Kahane in 2007. Over the years ARC has started up several real estate investment trusts, both listed and non-listed, operating in different segments of the commercial real estate industry.

After years of steadily investing it seems 2014 has been a good time for them to diversify some of their holdings, and to make them even more liquid by merging them with larger entities. Accordingly, first, in January the two agreed to merge their Nasdaq listed REIT American Realty Capital Trust, with a market capitalisation of about US$2.6 billion at the time, for shares in the much larger REIT, the New York Stock Exchange listed Cole Properties, with the merged entity having a US$10 billion combined market capitalisation.

Then just a few days ago the two also parlayed the merger of another of their publicly listed REITS, Nasdaq listed American Realty Capital Healthcare REIT for $2.6 Billion in Cash and Stock in a deal with Ventas Inc, listed on the New York Stock Exchange.

However the two partners have not been idle on the investing side either. Accordingly, in January they filed a prospectus to raise up to US$2 billion of new equity to invest in their latest baby, American Realty Capital Hospitality Trust. The new entity has given itself until 2016 to complete raising of funds, a public but presently non-listed entity. Its goal is to buy up quality hotels, where it can at a discount to asset value as well

Accordingly, the hunt has been on for acquisitions mainly in the mid-to upper tiers of the hospitality industry. The rationale for the new REIT lies in what seems very much like the re-emergence of sustained levels of economic growth again in the US economy, which than positively impacts progress in the hospitality industry itself.

At the end of March the new REIT committed to buy their first six hotels for over US$100 million. Now just this week ARC Hospitality has also filed new documents with the SEC confirming they have entered into an agreement to buy a portfolio of 126 more hotels for over US$1.9 billion. The package of hotels is known as the Equity Inns portfolio, has nearly 15, 00 rooms and is represented with properties in 35 different States. The sellers are a number of the Whitehall Real Estate Funds, which are real estate private equity funds sponsored by Goldman Sachs.

Management of the hotels will remain in the hands of several different major brands, including Hampton Inn, Hilton Garden Inn, Homewood Suites, Embassy Suites, Courtyard, Residence Inn, Hyatt Place and the Holiday Inn. The purpose of the new REIT is to own the bricks and mortar, and to invest only in properties that have well-managed operating brands taking care of them.

 

Nicholas Schorsch is Chairman of ARC Hospitality and his partner William Kahane serves as President and CEO. Commenting on the new acquisition Schorsch stated “The select-service hotel segment offers tremendous value given the economic recovery in the U.S., higher profit margins and reduced operational risks, ” adding, “Now is an opportune time to acquire well-located, high-quality hotels in the upscale and upper midscale tiers.”

 

William M. Kahane, CEO and President of ARC Hospitality stated, “The Equity Inns portfolio acquisition affords us a large-scale, premium-branded, stabilized, and geographically diversified lodging portfolio that exhibits strong current operating fundamentals with embedded growth dynamics. The purchase fits squarely within our vision of creating a best-in-class portfolio that will support our durable income strategy by delivering consistent distributions and capital appreciation to our investors.”

The purchase is expected to close in the fourth quarter, subject to the usual closing conditions. In an interesting footnote, Goldman Sachs and Deutsche Bank not only advised the sellers, i.e. to some extent themselves, but also are providing financing to ARC Hospitality to fund the purchase. Presumably this will be of an interim as well as permanent nature, until completion of ARC Hospitality’s equity offering.

About William Kahane

William M. Kahane, along with Mr. Schorsch, is a co-founder of American Realty Capital, which was created in 2007. He has held board positions for many of the real estate trusts sponsored by ARC.

Mr. Kahane has been active in the structuring and financial management of commercial real estate investments for close to 40 years. He began his career in 1974 as a real estate lawyer, practicing in both the public and private sectors. From 1981 to 1992, Mr. Kahane was in the investment banking department of Morgan Stanley, specializing in real estate where he became a managing director in 1989.

From 1997 until 2005, Mr. Kahane was on the Board of Directors of Catellus Development Corp, and served as non-executive chairman from 1999 to 2001. From 2003 to 2006, Mr. Kahane was a Trustee at American Financial Realty Trust, during which time Mr. Kahane served as Chairman of the Finance Committee of its Board of Trustees.

Mr. Kahane received a B.A. from Occidental College, a J.D. from the University of California Los Angeles Law School, and an MBA from Stanford University’s Graduate School of Business.

He is a member of the Board of Trustees of Temple Emanu-El in New York City – where he also married his wife Elizabeth in 1999. The couple actually met originally in Central Park in June, 1997 by accident, when his eventual bride apparently mistook the bridegroom for someone else she knew.

 

hilton-garden-inn

 

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