In a strategic move to capitalize on the thriving lifestyle hotel sector, private equity powerhouse KSL has announced its intention to acquire Hersha Hospitality Trust, a prominent owner of 25 upscale hotels across the U.S. The acquisition, valued at $1.4 billion in an all-cash transaction, demonstrates KSL’s bet on the potential of lifestyle hotels and the private equity sector’s growing interest in the hospitality industry.
The hospitality landscape is witnessing a shift as smaller hotel owners grapple with the challenge of competing against industry giants like Host. KSL’s acquisition of Hersha Hospitality Trust could potentially signal a trend of private equity firms making strategic forays into the lifestyle hotel segment, leveraging their financial prowess to drive expansion.
The acquisition is slated to culminate by the end of the year, pending approval from shareholders. This move would value Hersha at a remarkable 60% premium over the closing stock price of the real-estate investment trust on the preceding Friday.
KSL’s interest in Hersha Hospitality Trust underscores its recognition of the exceptional portfolio curated by the latter. Hersha’s collection includes 25 experiential luxury and lifestyle hotels and resorts, strategically positioned in key markets. Approximately 60% of Hersha’s room inventory, totaling 3,900 rooms, are located in urban markets that are yet to fully recover from the impact of the pandemic. Notable properties within Hersha’s portfolio encompass the Hyatt Union Square in New York City, The Rittenhouse Hotel in Philadelphia, The Envoy in Boston Seaport, The Ritz-Carlton Georgetown in Washington, D.C., and The Cadillac Hotel & Beach Club in Miami Beach.
KSL’s foray into the Hersha acquisition aligns with the broader trend of the surging popularity of lifestyle properties. The future outlook for this segment remains robust, with developers gearing up to construct around 60,000 high-end lifestyle hotels across the United States within the next four years. This projection, based on an analysis by The Highland Group of CoStar’s STR data, underscores the immense growth potential in this niche.
Furthermore, the KSL/Hersha transaction serves as a testament to the sustained interest of private equity firms in the hospitality sector. In particular, the post-pandemic landscape has prompted renewed focus on certain areas of commercial real estate, as urban regions grapple with the effects of rising interest rates and evolving demand dynamics for office spaces.
KSL’s extensive experience in the travel and leisure domain, coupled with its deployment of substantial capital—approximately $21 billion—across various funds since 2005, demonstrates its commitment to strategic growth in the sector. The recent investment in Soneva Holdings, a proprietor of three Asia-based hotels, further solidifies KSL’s position as a significant player in shaping the future of hospitality and leisure businesses.