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Eagle to sell portfolio and pay off Blackstone, 09/13/2012
By Stephanie Wharton

REPORT FROM THE U.S.—After approximately five years of financing difficulties, Eagle Hospitality Properties Trust agreed Monday to sell its 13-property portfolio to avoid foreclosure from its lender, the Blackstone Group.

Eagle Hospitality, formerly a publicly-traded real-estate investment trust, agreed to be taken private by Area Property Partners for $700 million in 2007.

After taking financing from Bear Stearns, one of the first banks to go belly up during the downturn, the debt was taken over by J.P Morgan. In that transaction, however, the debt was put into facilities owned by the New York state.

“In advance of the final maturity of September 2012, when the debt matured, the borrower decided to put the debt out to market and sell it in a full auction process,” said Brian Kim, managing director of real estate at Blackstone.

In May, Blackstone acquired debt from Eagle’s portfolio that consists of eight Embassy Suite properties, two Marriott properties, two Hilton properties and one Hyatt property.

“Our view is that the assets did not cover the debt balance,” Kim said. And because there was no equity value, executives of Blackstone thought Eagle should have let the company foreclose on the properties and hand over the keys.

Because the companies had a good relationship, they were able to reach an agreement. “What we decided to do is to give them a (chance to) basically market all of the properties for sale at a minimum price that we would be able to get paid out for a slightly discounted par,” Kim said.

“We basically gave them a price that we were indifferent about between the two outcomes,” Kim said. “If we got taken out at the price, we’d make a very attractive return … Alternatively, we could basically take the assets and do what we do, which is fix problems.”

Marc Beilinson, chief restructuring officer for Eagle Hospitality, said the company has received a number of responses from potential buyers so far. “There are a number of private-equity firms and public and private REITS that are … interested.”

Local buyers, too, have expressed interest in acquiring single properties or a group of hotels within the portfolio.

Eagle is in the process of evaluating if selling the properties on an individual basis or as a portfolio would be best for the company.

Executives also have not yet set a deadline for the portfolio sale, Beilinson said. “We’re reevaluating that all the time.”

“Ultimately, they need to hit a certain price by a certain date, meaning we need to have cash in our pocket by a certain date,” Blackstone’s Kim said.

The deal with Eagle Hospitality, he said, was done through Blackstone Real Estate Partners VII, a global opportunity fund. “We are very close to concluding our fundraising, which will result in a fund between $13 (billion) and $14 billion.”

Future of Eagle Hospitality Some uncertainty remains regarding what will happen with Eagle Hospitality once its 13 hotels, which comprise 3,538 rooms, are sold.

“There is an opportunity to recapitalize the REIT around certain remaining assets and continue as a REIT,” Beilinson said. “Once we know what the proceeds are, we will either be recapitalizing or distributing to shareholders.”