Big Changes to Accompany $400M Infusion in ARC Hospitality

By Scott Baltic, Contributing Editor

New York—An affiliate of Brookfield Strategic Real Estate Partners II has committed to invest up to $400 million, on a delayed draw basis, in American Realty Capital Hospitality Trust Inc., the latter announced Friday. The Brookfield entity is a real estate private equity fund managed by affiliates of Brookfield Asset Management Inc.

Bruce Wiles

As part of the transaction, Brookfield reportedly will be afforded “certain corporate governance and approval rights over certain activities” of ARC Hospitality and its operating partnership, and the REIT’s board will be overhauled.

In addition, once the transaction has closed, and under a separate agreement with ARC Hospitality’s current external manager, American Realty Capital Hospitality Advisors LLC, ARC Hospitality will become self-managed and will terminate the existing advisory agreement.

Finally, ARC Hospitality will be renamed as Hospitality Investors Trust Inc.

The closing is expected to occur in March. ARC Hospitality did not reply to Commercial Property Executive’s request for further information.

The ARC Hospitality board of directors will be increased from four members to seven. Of the seven, two members will be appointed by Brookfield; they are expected to be Bruce Wiles, who will serve as board chairman, and Lowell Baron, both of whom hold senior management positions at Brookfield.

Stanley Perla and Abby Wenzel will continue as directors, and it’s anticipated that Jonathan Mehlman, the company’s president & CEO, will be added to the board, along with two new independent directors nominated by the existing board and approved by Brookfield.

Among the uses to which the $135 million initial portion of Brookfield’s investment will be put is the acquisition for $66.8 million of a seven-hotel, 651-key portfolio, pursuant to ARC Hospitality’s pending purchase agreement with Summit Hotel Properties Inc. The Marriott International, Hilton Hotels & Resorts and InterContinental Hotels Group properties are in Germantown, Tenn.; Ridgeland, Miss.; and Jackson, Miss.

The purchase will boost the company’s lodging portfolio to 148 hotels and 17,844 keys across 33 states.

“We expect Brookfield’s investment commitment to enhance our ability to complete our property renovations on a timely basis and to close the Summit acquisition, which we believe will enhance our portfolio value,” Edward Hoganson, ARC Hospitality’s CFO, said in a prepared statement.

“In addition, by addressing our near-term financing needs, the investment should provide the Company with a more sustainable capital structure and an improved debt maturity profile. Moreover, we believe the Company’s transition to self-management will allow us to operate more cost efficiently….”

Image courtesy of Thayer Lodging, Brookfield Hotel Properties