October 1, 2018 – Inspected in person by new owners, two River North hotels sold in a $5.2 billion deal last month could be sold again over the next year.

Pebblebrook Hotel Trust has announced the sale of just three of the 41 hotels it acquired from LaSalle Hotel Properties – two in New York and one in San Francisco – but says more will be sold to reduce debt.

Jon Bortz, chairman, president, and chief executive officer of Pebblebrook, told investors on September 13 that within six months to a year after closing on the LaSalle deal, the company will sell an additional $500 million to $1 billion in assets. He did not identify which hotels would be sold.

The Westin Michigan Avenue, Hotel Chicago, and much of the commercial property at Marina City were sold to Pebblebrook in a deal announced on September 6.

In Chicago on September 20, Pebblebrook’s executive vice president and chief financial officer said they have not yet decided what to do with the Chicago properties but will review them.

“We haven’t made a determination either way of any of these assets,” said Raymond Martz (left). “We’re going to evaluate each of them. None are on the block, but none are off the block.”

LaSalle Hotel Properties had owned Hotel Chicago and adjacent commercial property since 2006, when it purchased what was then the House of Blues Hotel from HOB Entertainment Inc. for $114.5 million. The property now includes commercial spaces leased by 16 businesses.

Many of the hotels Bortz is visiting, that were acquired in the merger, will be familiar to him. From 1998 to 2009, he was president, chief executive officer, and a trustee of LaSalle.

Though Chicago is “a very popular market,” Martz says it struggles with over-supply of hotel rooms. He says it “clearly impacts the market and it makes it difficult to drive room rates.”

(Right) The Westin Michigan Avenue, looking north from Michigan Avenue. (Click on image to view larger version.)

Under terms of the merger agreement, LaSalle shareholders will choose between $37.80 for each share of LaSalle stock they own, or trade for 0.92 shares of Pebblebrook stock. The deal is estimated to be worth $5.6 billion, with Pebblebrook buying all of LaSalle’s outstanding common shares. It is $800 million more than an offer LaSalle had from the private equity firm Blackstone Group LP.

With 66 assets in or near 16 key urban markets, Pebblebrook says it will be the largest owner of independent hotels.

The transaction is subject to approval by shareholders of LaSalle and Pebblebrook, regulatory approval, and closing conditions, but is expected to close by the end of 2018.