$5.2 billion deal includes Marina City commercial property
Loop North News

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(Above) Marina City in late morning from Wacker Drive on July 31, 2009.

10-Sep-18 – A $5.2 billion merger of two publicly-traded real estate investment trusts includes two hotels in Chicago and much of the commercial property at Marina City.

LaSalle Hotel Properties, owner of 41 properties in eleven markets, including Hotel Chicago in River North and The Westin Michigan Avenue, announced on Thursday a “definitive merger agreement” with Pebblebrook Hotel Trust, owner of 28 hotels in nine states and the District of Columbia. Both LaSalle and Pebblebrook are based in Bethesda, Maryland.

Under terms of the 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 bigger than an offer LaSalle had from New York-based Blackstone Group LP. The private equity firm had offered $33.50 per share, or about $4.8 billion total, but decided not to out-bid Pebblebrook’s offer.

Pebblebrook says it will have a portfolio of 66 assets in or near 16 key urban markets and will be the largest owner of independent hotels.

Reached on Monday, LaSalle president and CEO Michael Barnello confirmed that Pebblebrook “will be acquiring all of our businesses, including any retail, parking, etc., we own in Chicago and as part of the Hotel Chicago complex.”

The complex in River North includes commercial spaces currently leased by 16 businesses. In addition to the hotel, LaSalle leases commercial space in a 300,000 square foot structure above the marina and on the plaza level of Marina City’s west tower. Smith & Wollensky leases approximately 21,543 square feet of space in its building in the southeast corner of Marina City. The four-story, 100,000 square foot House of Blues, on the west side of the complex, is owned by Live Nation.

Photo by Steven Dahlman

(Left) People playing ping-pong on lower level of SPiN during its grand opening party on March 10, 2016.

Other tenants include 10pin Bowling Lounge, Bar Louie River North, Chicago Electric Boat Company, Dick’s Last Resort, IVme Wellness + Performance Center, Jefferson Beach Yacht Sales, Katana, Marina Cleaners, North Loop Market, SPiN, Subway, Tortoise Supper Club, and Yolk.

LaSalle purchased the Marina City property in 2006, buying what was then the House of Blues Hotel from HOB Entertainment Inc. for $114.5 million.

Barnello says the agreement gives his shareholders “immediate cash value.”

“This outcome represents the culmination of a thorough strategic alternatives process, which from the beginning has been focused on maximizing value for shareholders,” said Barnello (right).

Michael Barnello

Jon Bortz, CEO of Pebblebrook, says his shareholders “will benefit from this premium portfolio of high-quality independent and branded hotels through its capacity to generate strong cash flow, provide for a stable dividend, and capitalize on market opportunities, including improving hotel industry fundamentals.”

Though employees of LaSalle-owned hotels will continue working under Pebblebrook’s ownership, Barnello says he will not be involved in the merged company.

“On behalf of LaSalle’s board and management team, I would like to express our deep appreciation to our employees, whose hard work and dedication have been instrumental in making LaSalle the outstanding company it is today. We are committed to working closely with Pebblebrook to quickly bring this transaction to closure,” said Barnello.

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. Trustees of both companies unanimously approved the deal.

A law firm specializing in shareholder rights says it is investigating the deal, believing the price to be too low. Johnson Fistel, LLP, says LaSalle board members “failed to satisfy its duties” to shareholders by not adequately pursuing alternatives to the acquisition, “including whether the board...obtained the best price possible for LaSalle shares of common stock.”

By Steven Dahlman | Loop North News | sdahlman@loopnorth.com

Published 10-Sep-18 4:41 PM

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