UPDATE: Fairwood Capital In Agreement to Buy Peabody Little Rock

by George Waldon  on Thursday, Jun. 28, 2012 11:35 am  

Fairwood Capital LLC of Memphis is looking to add the largest hotel in Arkansas to its growing portfolio of hospitality properties.

Fairwood Capital LLC of Memphis is looking to add The Peabody Little Rock to its growing portfolio of hospitality properties, according to the company that controls the state's largest hotel.

The Peabody Little Rock, with 418 rooms and 22 suites, is controlled by BG Excelsior Ltd., led by Marty Belz. The limited partnership leases the location from the city of Little Rock in an arrangement that expires in 21 years with two, 25-year options to extend.

In a statement, BG Excelsior confirmed earlier reports that it is considering selling the Peabody, saying it has signed an agreement with Fairwood "regarding a potential sale" of the hotel.

"The sale is subject to completion of the buyer's due diligence and various other conditions including approval of the transaction by City of Little Rock officials," BG said in a news release.

BG Excelsior is an affiliate of The Peabody Hotel Group, which is part of Belz Enterprises Inc. of Memphis, and operates the 18-story property that includes 40,000 SF of meeting space. Arkansas Business reported Wednesday that Belz was considering a sale.

Since its 2008 launch, Fairwood has purchased a string of properties that include a Hampton Inn and Suites in Atlanta, an Embassy Suites in St. Louis, a Hilton Garden Inn in Baton Rouge, La. and the Hilton Knoxville (Tenn.).

Fairwood is led by Ed Ansbro of Memphis and Todd Solmson of New York. The two hope to build a $400 million portfolio with as many as 25 hotel properties.

"The Peabody has been honored to be part of the Little Rock community for these past 10 years," Andrew Groveman, senior vice president of Belz Enterprises, said in the news release. 

"We are delighted to have found a prospective buyer we have known for many years and who plans to invest substantial funds into the hotel, so that it will continue to be a vital part of the Little Rock lodging and tourism scene."

In its statement, BG Excelsior said Fairwood is exploring "several upscale national hotel franchise companies to determine a brand for the hotel." The rebranding will require "a multi-million dollar investment in comprehensive renovations to the property." It said renovations will likely include "all guest rooms and some public spaces, and they are not contingent upon financing."

Fairwood expects to select a brand for the hotel "within the next month," the news release said.

The Deal

The deal for the hotel includes having sole rights to provide banquet/catering services for the adjoining 200,000-SF Statehouse Convention Center.

An October 2011 appraisal indicated the property reportedly was worth $40 million.

The proposed transaction represents the second deal between Belz and Fairwood Capital. In 2010, Fairwood Capital bought the 144-room Hampton Inn & Suites in downtown Memphis from Belz.

The Peabody Little Rock is carrying about $23.8 million of debt held by the state's largest pension fund, Arkansas Teacher Retirement System. The loan matures in 12 years and originally totaled $28 million in September 2000.

During the past nine months, Peabody Hotel Group officials talked with ATRS about borrowing an additional $7 million to upgrade the property with high-definition televisions, new hallway carpeting, furnishings and more.

But those talks never reached fruition.

"We never could make that work," said George Hopkins, ATRS executive director.

The pension fund has more lucrative investment opportunities than offering low interest financing to match current lending rates. A property such as the Peabody Little Rock could attract an interest rate of 5.5 percent, depending on the credit worthiness of the borrower.

The ATRS loan is at 7.5 percent.

Competition

The luxury hotel has come under increased competition from newer downtown hotels such as the 120-room Courtyard by Marriott and 119-room Hampton Inn & Suites, both owned by McKibbon Hotel Group Inc. of Gainesville, Ga.

McKibbon is in the process of developing its third downtown property, a six-story, 107-room Residence Inn.

The Courtyard by Marriott at 521 President Clinton Ave. opened in November 2005 and the Hampton Inn & Suites at 320 S. Commerce St. opened in October 2008.

The Peabody Little Rock is the state's largest hotel by revenue, reporting $16.1 million in revenue, or $38,600 per room, in 2011. According to Arkansas Business' annual list of hotels (PDF), revenue for the Peabody declined nearly 3 percent from the previous year. 

 

 

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