Colony Sells Most of it’s Hotel Business to Highgate in US$2.8bn Deal

Main Photo: The Westin Governor Morris, Morristown, a former Colony Capital hotel

Date: September 2020

Locations: Across the USA

Names: 197 of them!

No. of Keys: 22,676

Seller: Tom Barrack’s Colony Capital is selling the majority of its beleaguered hotel business to private investor Highgate Hotels in a deal valuing the properties at $2.8 billion.

The publicly traded Colony signed an agreement to sell six of its seven hotel portfolios to Highgate for $67.5 million, plus the assumption of $2.7 billion in debt, the California-based company announced this week.

Buyer: Highgate co-founder and managing principal Mehdi Khimji said his company, which has more than $10 billion worth of hotels under management, remains bullish on the sector “despite the unprecedented disruption in hospitality over the past six months.”

The deal, expected to close in the first quarter of 2021, includes 197 hotel properties with 22,676 rooms across the country. With the sale, Colony is making an almost full exit from the hospitality sector — a move long planned by the company but accelerated the pandemic forced hotel closures and put a halt on travel.

The firm, which has struggled with a lagging stock price, has spent the last few years pivoting away from traditional, legacy real estate investments to ones focused on digital properties like cell phone towers and data centres.

But the coronavirus pandemic put a huge strain on the company’s existing properties. Even as Barrack took to public airwaves to advocate a government bailout for the commercial real estate industry, Colony was struggling to make its mortgage payments. In May, the company defaulted on $3.2 billion worth of loans backing its hotel and healthcare properties.

The sale of the majority of its hotel assets is likely the largest distress-driven transaction in the sector since the start of the pandemic. (The deal does not include Colony’s second-largest portfolio: the 48-property, 6,402-key Inland portfolio, which is in receivership.)

“The sale of our legacy hospitality assets is a significant milestone in Colony’s digital transformation as we pivot to focus exclusively on our fast-growing digital businesses that generate superior returns for Colony shareholders,” Colony CEO Marc Ganzi said in a statement.

The pandemic has disrupted the hospitality industry in other ways. In April, a deal between Anbang to sell a portfolio of 15 American hotels to Mirae Asset Global Investments for $5.8 billion fell apart, and the two sides are now in court battling it out.

Highgate, for its part, has also seen its own shakeup. Neil Luthra, the company principal who ran Highgate’s day-to-day operations, recently left the company.

Price: US$2.8bn

Price per Key: $123,479

THPT Comment: Wow! It’s the largest shakeup the hospitality sector has seen since being decimated by the pandemic. Tom Barrack predicts commercial mortgage market crisis…as is evidenced by his own company. HIghgate is the largest owner and operator of hotels in New York City….this mega-deal takes them right across the USA.

First Seen: The Real Deal

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