Going intermodel

Real estate may be all about location, but sometimes timing plays a critical role, too.

Consider the purchase of the 489-room Doubletree by Hilton Tampa Airport hotel, which New York-based consulting firm LW Hospitality Advisors ranked as one of the largest area lodging deals of the year to date.

At $45 million, the purchase price by the Florida Department of Transportation on a deed posted in January was 21% greater than the amount New York-based Blackstone Group paid in August 2015.

But FDOT officials note that the price could have gone up markedly in future years, based on a recent appraisal and Tampa-area hotel appreciation since 2013.

Had that occurred, FDOT would likely have been priced out of the market for the 9-acre tract that now contains the hotel and a restaurant.

Officials say they plan, eventually, to use the land as an intermodal hub -- a nexus for possible light rail trains, buses and other modes of transportation.

FDOT targeted the Doubletree, they say, because of its strategic location near Tampa International Airport and an established road network in Westshore, near to Interstate 75 and Interstate 4. It was also among the least expensive properties in the area that met FDOT's criteria.

“It was a smart thing because it will ultimately we believe save taxpayer dollars,” says Penny Anthony, an FDOT district right of way manager. “There was no doubt that the cost would have been substantially more than what we paid in the future.”

The FDOT deal comes as hotels throughout the Gulf Coast are appreciating significantly in value based on waxing tourism numbers, occupancy gains and double-digit increases in average room rates.

Ratings agency Fitch notes that 2015 saw “peak levels” for hotel revenue and net operating income nationwide.

“You can't argue with the strength of the Tampa hotel market,” says Gregory Rumpel, managing director of commercial real estate services firm JLL's hotels and hospitality group. “It has the best revenue available per room on average of any market in the state of Florida.”

An appraisal of the Tampa hotel, meanwhile, completed shortly before the late December purchase concluded the Doubletree by Hilton was worth $48.8 million, Anthony says.

Under terms of a lease with Blackstone affiliate BRE Imagination Hotel Owner LLC completed as part of the sale, FDOT will receive $900,000 in base rent from the investment company from the Westshore hotel through December 2017.

The agency also will receive rent equal to 5% of Blackstone's net cash flow from the 4500 W. Cypress St. property up to $2 million, and 10% of net cash flow above that figure.

FDOT executed the two-year lease term because it expects it will take that long to complete an intermodal analysis aimed at integrating future light rail, buses and other public transportation on or near the Doubletree site.

“Until we identify the need for intermodal and how that would be executed, the hotel will continue to be leased,” Anthony says.

The future of light rail in the Tampa area, meanwhile, continues to be murky. Last month, Hillsborough County officials narrowly rejected a sales tax that would have funded studies aimed at bringing light rail to the city.

Mayor Bob Buckhorn and others have said implementing light rail is critical to the transportation needs of the city in the future.

The Hillsborough vote against a proposed sales tax that would have raised more than $115 million a year for 30 years came on the heels of a similar defeat by voters in Pinellas County.

But Anthony contends FDOT must look forward years into the future in allocating resources and in planning.

In Miami, for instance, the agency acquired several hotels for eventual inclusion into an intermodal system, says Daniel Lesser, president of LW Hospitality.

“We've seen this before in Florida, where they buy a hotel property now for a future transportation use,” Lesser says.

FDOT originally sought to acquire the Doubletree in 2014, when the property was owned by GE Capital and fell into receivership.

At the time, GE rejected FDOT offers of $40 million for the hotel.

When Blackstone acquired GE Capital assets in a $20 billion commercial real estate portfolio sale, however, the state once again attempted a purchase.

“FDOT went through an auction process with us and they were good to work with,” says Byron Blount, a Blackstone official in New York who completed the deal. “The Doubletree was a non-core asset to our business, and the agency took a longer-term perspective with it than we're allowed to have.”

Kent Schwarz, a Colliers International Tampa Bay hotel broker, notes the Doubletree makes sense for the agency from a strategic standpoint.

“Certainly there's a shortage of land in the Westshore area, near the airport, but that comes at a price,” he says. “But, it's still less than replacement costs. Anyone would be hard-pressed to build a hotel with as many rooms for that amount.”

JLL's Rumpel also says the purchase price was in line with other lodging properties of similar caliber.

“It doesn't surprise me,” he says.

- K.L. McQuaid