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Troubled REIT Gets Blackstone's OK To Sell 13 Hotels
Law360, 09/11/2012
By Liz Hoffman

Law360, New York (September 11, 2012, 4:19 PM ET) -- Troubled hotel investor Eagle Hospitality Properties Trust Inc. said Monday it had reached an agreement with its distressed debt investor, New York-based Blackstone Group LP, to sell 13 hotels and repay its debt at a discount, avoiding foreclosure and laying out a path to wind down the real estate investment trust.

The deal comes after Eagle, which is owned by private real estate investor Area Property Partners LP, was unable to meet a deadline Sunday on the $606 million in mortgages at the properties. It puts the 13 hotels, scattered through markets like Boston, Chicago, Cincinnati and Denver, on the market and guarantees Blackstone at least some return on the debt. The companies did not disclose the discount.

The hotels, branded as Embassy Suites, Hilton, Marriott and Hyatt properties, comprise 3,538 rooms and have been benefited from $77 million in maintenance and upgrades since 2008, Eagle said. For the 12 months ending July 31, the properties reported average occupancy rate of 75.4 percent and growth of revenue per available room of 7.1 percent, slightly below the U.S. average of 8 percent, according to Blackstone.

The properties "are experiencing excellent growth and are well-positioned in their markets," Marc Beilinson, who was hired in May as the REIT's chief restructuring officer, said. "This is a tremendous opportunity for investors to acquire high-performing assets amid a historically low-cost market for borrowing."

Area bought Eagle's portfolio in 2007, but the mortgages for the 13 properties ended up with Maiden Lane LLC, the government-backed group managing the assets of now-defunct Bear Stearns. When real estate values dropped, Eagle was unable to make payments, according to public documents.

In March, it met with the Fed to talk about emergency loans and hired now-defunct law firm Dewey & LeBeouf LLP to look at strategic sale options, a process that has since moved over to Milbank Tweed Hadley & McCloy LLP.

But in May, Blackstone bought the debt from Maiden Lane, part of a string of distressed debt hotel investments that also saw the private equity firm acquire the Motel 6 discount chain from France's Accor SA in a deal valued at $1.9 billion. The purchase, which the Wall Street Journal pegged at $465 million for $606 million in face-value debt, was a bet that Area wouldn't be able to refinance or pay off the loan.

The firm also owns Hilton Worldwide Inc. and a stake in once-bankrupt Extended Stay Inc., as well as debt from La Quinta Corp., owner of budget inns. It also had a first close earlier this early on $10 billion for a real estate fund that would be the biggest property fund raised since the recession, a move that will likely fuel continued investments in the flood of boom-era commercial mortgages that come due over the next few years.

"This is the distressed wave that people have been talking about ... we actually try to be a bit of market-timers," Blackstone CEO Stephen A. Schwarzman said in a July conference call, noting that Blackstone is now entering single-family housing at what it thinks is the bottom of the cycle, "more or less picking another market bottom like we've done in the hotel business."

Eagle is being advised by Milbank Tweed Hadley & McCloy LLP. Lazard Freres & Co. LLC is serving as financial adviser on the sale.

Counsel information for Blackstone was not immediately available.