Argosy Invests in DoubleTree El Segundo/LAX

On February 14, 2014, Argosy Real Estate made a controlling investment in the DoubleTree by Hilton hotel in El Segundo, California (Los Angeles MSA). The institutional quality, 7-story hotel was built in 1987 and contains 215 rooms and approximately 4,500 square feet of meeting space. The Hotel achieves consistently strong operating performance and profitability due to its superb location, brand affiliation and rooms-focused configuration. Considerable upside potential exists through a planned renovation and improved management.

The Hotel is located two miles south of the Los Angeles International Airport and is within the 7.5-million-square-foot El Segundo office market. Strong demand generators in the local area include a large concentration of office space that includes several corporate headquarters, the Los Angeles International Airport (the 6th busiest airport in the world), and leisure sources such as the Toyota Sports Center and nearby beaches. Due to the extremely strong and consistent room night demand in the immediate area, the Property and its competitive set have demonstrated resilient operating performance even throughout the recent economic downturn. There are high barriers to entry in the submarket due to limited land supply, a difficult entitlement process, and a lack of available hotel brands. The DoubleTree brand, which includes more than 300 hotels worldwide, is owned by Hilton Worldwide and benefits from Hilton’s strong distribution system and loyalty program.

The Property was acquired in an off-market transaction at a significant discount to replacement cost and comparable sales. The business plan contemplates a $3.6 million ($17,000 per key) renovation which should result in additional market penetration and revenue enhancement. In conjunction with the acquisition, the partnership secured a new 10-year fixed-rate loan at an attractive interest rate. The investment is expected to generate high cash-on-cash returns while providing significant downside protection.

Argosy partnered with Evolution Hospitality, a privately-owned hotel management company based in San Clemente, California. Evolution’s local infrastructure and operating experience, which includes a portfolio of more than 25 hotels primarily located in Southern California, should result in immediate efficiencies and cost savings.