DiamondRock Announces Agreement to Acquire Hotel in Times Square, New York City

  • DiamondRock Hospitality Company
  • 01.19.11
DiamondRock Hospitality Company (NYSE: DRH) announced that it has entered into a purchase and sale agreement to acquire, upon completion (expected in 2013), a hotel property under development on West 42nd Street in Times Square, New York City.

Upon completion by the third-party developer, the hotel is expected to contain approximately 250 to 300 guestrooms.  The contractual purchase price will range from approximately $112.5 million to $135 million, depending upon the final number of guestrooms, or approximately $450,000 per guestroom. The number of guestrooms could be increased to approximately 400 guest rooms if certain required permits, approvals and consents are obtained, which would result in the contractual purchase price increasing to approximately $178 million, or $445,000 per guestroom.  The contract is for a fixed-price (which varies only by total guestrooms built and the completion date for the hotel) and DiamondRock is not assuming any construction risk, including not assuming the risk of construction cost overruns.

DiamondRock currently expects that construction of the hotel will be complete in approximately 24 to 30 months with an anticipated opening date during 2013.  The company's acquisition of the hotel is subject to a variety of conditions, including substantial completion of the hotel by the third-party developer, construction of the hotel within the contractual scope as well as the satisfaction of other customary closing conditions.

The hotel is being developed by an affiliate of Walton Street Capital LLC and Highgate Holdings.  Highgate Hotels is expected to operate the hotel upon completion.  DiamondRock is preparing to submit a franchise application to one of the global hotel companies to brand the Hotel with a well known upscale select-service brand. 

"We are very excited to enter into this agreement to purchase our fourth hotel in New York City. This acquisition furthers our strategy of enhancing our full-service portfolio with urban select-service hotels in top MSAs. Additionally, we look forward to enhancing our business relationship with Highgate Hotels," said Mark W. Brugger, chief executive officer of DiamondRock Hospitality.

"We believe the hotel development has an excellent location at the intersection of 42nd Street and Broadway, directly across from the Conde Nast building and less than one block from Bryant Park. We believe the hotel will be equally attractive to both business and leisure travelers visiting New York City due to its location in Times Square as well as its close proximity to the many businesses located near the hotel such as, the Bank of America Tower located at One Bryant Park and the Verizon Building at 1095 Avenue of the Americas," said John L. Williams, president and chief operating officer of DiamondRock.

Upon entering into the purchase and sale agreement, DiamondRock committed to make a $20 million deposit. Upon the completion of certain construction milestones, the company will be required to make an additional deposit of $5 million. If certain permits, approvals and consents necessary for the hotel to contain more than 250 guestrooms are obtained, the company will be required to make an additional deposit equal to $45,000 per guestroom for each room in excess of 250.  The deposits will earn interest and will be refundable to DiamondRock if the hotel development project is not completed.

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