Boston’s Envoy Hotel Goes to Hersha
The 136-key hotel located in the bustling Seaport District fetched $112.5 million.
By Barbra Murray, Contributing Editor
Boston—Only a select few were presented with the coveted opportunity to acquire The Envoy Hotel in Boston, and Hersha Hospitality Trust has emerged victorious. Hersha just purchased the year-old, 136-key boutique hotel from Norwich Partners, in a $112.5 million transaction.
Located at 70 Sleeper St., the Envoy sits in the booming Seaport District, bordering the blurred lines that separate the increasingly sought-after submarket from the Financial District and the blossoming Innovation District. It wasn’t a hard sell.
“The Envoy Hotel presented investors with an opportunity to acquire a new hotel with every attribute an investor found desirable—the hotel enjoys an excellent location, the land is owned in fee, the design is attractive to all market segments and age groups, the Marriott Autograph affiliation is a plus, the food and beverage operation is receiving rave reviews, and the roof top bar has emerged as one of the most popular bars in Boston,” Denny Meikleham, managing director with HFF, the real estate and capital markets services provider that marketed the property on Norwich’s behalf, told Commercial Property Executive.
Alas, Hersha certainly faced competition among the small but very eager group of international and domestic investors. It wasn’t just the property’s new-build condition or four-diamond status that the hopeful buyers found attractive; it was the Boston market that was the real hook.
“Boston has a strong international and national reputation. The hotel market has consistently been one of the strongest in the country, driven by its diversified and growing business community, international airport access, year-around tourism, convention center demand, and its numerous colleges and universities,” Meikleham said. “Boston is also a very difficult market to develop in; high barriers to entry make any existing hotels desirable to investors.”
Desirable enough for Hersha to shell out $827,000 per key on the property, which came unencumbered. (But that’s practically chump change compared to the record $945,945 per key agreed upon for Mandarin Oriental Boston earlier this year.) Hersha financed the acquisition of the Envoy with 1031 exchange proceeds from the $571.4 million sale of a joint-venture interest in a seven-property group of its Manhattan hotels. “Hersha had a lower cost of capital for this particular transaction given the need to invest 1031 exchange proceeds; we believe investors would have been happy with a special dividend at year-end if Hersha had not re-deployed these funds though,” Michael Bellisario, vice president with financial services firm R.W. Baird & Co., told CPE. “Time will tell on the performance; just like Hersha, we have a positive longer-term view of fundamentals in Boston.”
The Envoy may be brand new but it’s not too new for improvement, from Hersha’s perspective. The REIT plans to institute a more aggressive revenue management program, re-evaluate guestroom touchpoints and service delivery, and tinker with the food and beverage offerings. However, it’s likely that the six-story hotel’s 6,000-square-foot Lookout Rooftop Bar, Boston’s only rooftop venue with views of the city’s skyline and waterfront, will remain just as it is.