The Meridian and Hyatt Regency Bethesda have decided to join forces yet again. In 2012, the Hyatt went into foreclosure but now, the 390-room full-service hotel located at 7400 Wisconsin Avenue in Bethesda, a suburb of Washington, DC, is being purchased by Meridian, an investment manager, for a second time.
Original Property Transactions
Initially, the hotel was acquired by Meridian in 1999 but then sold in 2007 to Rockwood Capital for $107 million. At this time, Rockwood set up a $140 million loan, underwritten on the assumption that once fully stabilized, the property would have a value of $190 million.
Annual net cash flow for the hotel was anticipated at $11.2 million. However, in 2008 only $9.6 million was generated, this according to data compiled by Trepp LLC. Five years later when the most current full year information became available, it was determined that cash flow generated was just $7 million, $4.2 million less a year than predicted.
Once the commercial mortgage backed security (CMBS) loan started to amortize in 2009, major problems began to surface. To deal with the cash flow shortage of almost $1.5 million, the Hyatt Regency Bethesda was turned over to LNR Partners, a special servicer. It was that company that took the then 30-year-old property through a foreclosure in 2012.
Then in early 2014, the hotel was appraised for just $83 million but by last November, the value was modified to $106.5 million. With Meridian’s purchase of the Hyatt Regency Bethesda complete, proceeds will first go toward paying $8.9 million in advances that the master servicer made against the debt. Other money needing to be recouped includes $8.1 million of appraisal subordinate reduction amounts lodged against the loan.
Completing the Deal
As part of the deal, Rockwood Capital will remain as the asset manager. Now that Meridian has purchased the Hyatt Regency Bethesda, the issue with the outstanding $140 million loan is resolved. Although the exact amount of money Meridian spent for the hotel has not been disclosed, some insiders believe it is less than the appraisal value of $106.5 million.
The deal for Meridian to purchase the property was made possible because of the Meridian Realty Partners II fund that is working to raise equity commitments in the amount of $250 million. The Blackstone Group will handle the purchase financing with a loan that provides funds used for renovation needed for bathrooms, guestrooms, lobby upgrades, and the replacement of soft goods.
Sitting atop the Bethesda Metro station, which is located only seven miles from the downtown area this property will remain under the management of Hyatt Hotels Corporation. Once the contract expires, Highgate Hotels has already been secured by Meridian to take over. While not confirmed, it is believed that the hotel will still be branded as a Hyatt property.
Included is 20,000 square feet of space for business meetings, a business center, two on-site restaurants, a heated indoor rooftop swimming pool, fitness center, and gift shop. With renovation and new upgrades, the Hyatt Regency Bethesda is expected to be restored to its once beautiful state.
As stated by Gary Block, managing director leading the Meridian transaction, this acquisition is great news. In addition to the hotel having a premier location, the purchase offers tremendous potential from an investment standpoint.