Chesapeake Buys Hotel Indigo San Diego

June 20, 2011
By Barbra Murray, Contributing Writer

Courtesy Flickr Creative Commons user nebulux76

Chesapeake Lodging Trust has been on a springtime shopping spree and just one day before the official start of summer, the hotel REIT reveals that is has purchased the Hotel Indigo San Diego Gaslamp Quarter. Chesapeake snapped up the 210-room boutique hotel from InterContinental Hotels Group in a $55 million cash transaction.

Developed in 2009 by IHG, the Hotel Indigo sits in San Diego’s historic Gaslamp Quarter at 509 9th Ave., within close proximity of the 2.6 million square-foot San Diego Convention Center and PETCO Park. The upscale property offers 1,500 square feet of meeting space, a business center, a fitness facility, a parking garage, as well as a restaurant and a bar. The Hotel Indigo also carries the distinction of being San Diego’s first hotel to earn LEED certification by the U.S. Green Building Council, offering such sustainable features as a green roof and a terrace herb garden.

IHG was motivated to sell the hotel as part of its “asset light” strategy, which focuses on the increasing of its management and franchise businesses while decreasing capital intensity. However, IHG will continue its involvement with the property as manager under a long-term agreement.

For Chesapeake’s part, the purchase of the Hotel Indigo marks yet another step forward in what has been a steady campaign since the completion of its January 2010 public offering to create an upper upscale hotel portfolio in business and convention markets across the country. Spring was particularly busy for the REIT with the $128.8 million purchase of the 368-room W Chicago-City Center and the $53 million acquisition of the Homewood Suites Seattle Convention Center. With the purchase of the Hotel Indigo, the REIT now owns eight hotels.

“I think they’ve done a pretty good job of building up their portfolio,” Rod Petrik, managing director with investment banking firm Stifel, Nicolaus & Co., told CPE. “They’ve done a good job of spending proceeds from their IPO and from their second offering, but they haven’t gotten credit in the market for that. It’s certainly not reflected in their share price, which still trades under the IPO price.”

Chesapeake is not alone. He points out that the shares of the other two blind pool lodging REITs, Pebblebrook Hotel Trust and Chatham Lodging Trust, are also currently trading below $20.

“Chesapeake has got to balance their need for capital,” Petrik said. “With these deals, they’ve exhausted a lot of their funds and the market will know they’re going to need more liquidity, they’re going to come back and raise more money, and that keeps a lid on the share price. But the next deal should get them over the $1 billion mark and that might provide liquidity in the name. And James Francis, the CEO, has a good reputation. He certainly did well with Highland Hospitality Corp. He’s putting together a nice institutional portfolio.”