Crains Detroit Business | October 29th 2016
A developer of acclaimed hotels in New York, Los Angeles and New Orleans has bought the Hilton Garden Inn in downtown Detroit and is planning a room renovation and new restaurant for the 12-year-old hotel.
New York-based GFI Capital Resources Group Inc. paid $25.6 million, about $4 million above the price the hotel appraised for at the end of 2015.
The purchase is another sign of interest from investors in the Detroit hotel scene. Six hotel projects in development could bring roughly 970 more rooms to the downtown market over the next few years. They include a hotel in the historic firehouse across from Cobo Center, a Shinola branded hotel, a 97-room hotel at the Wurlitzer Co. building on Broadway Street and the boutique Harmonie Club Hotel in the Paradise Valley Cultural and Entertainment District.
Last month, contemporary furniture retailer West Elm announced its plans for a boutique hotel with more than 135 rooms and a retail store in Midtown.
The Hilton Garden Inn had many bidders in the online auction, said GFI’s chairman and CEO, Allen Gross.
Like the late billionaire New York real estate investor Harry Helmsley, GFI felt it was worth it to overpay, Gross said.
“We see the rebirth of Detroit, which everybody figured was dead … and it’s great we can be part of it.”
GFI loves the hotel’s location and what’s happening downtown, Gross said. And it’s no short-term investor.
“We play for long periods,” he said. “This is a great asset in a great location. … We’re looking to take it to the next level.”
Located at Gratiot Avenue and Brush Street, in Detroit’s central business district near Ford Field, Comerica Park and Greektown Casino-Hotel, the Hilton Garden Inn went up for auction in July.
Citigroup, the lender on a $20 million loan to DHG Associates, an affiliate of The Ferchill Group, took possession of the property after it transferred to special servicer CW Capital in 2010.
The Ferchill Group, which built the 10-story hotel in 2004 for $28 million, missed a single payment on the mortgage after finding out a manager had been stealing money, John Ferchill said.
Ferchill’s company, which owns the Westin Book Cadillac in Detroit, requested a 90-day forbearance on the loan to stabilize its finances and put things in order again at the hotel, he said. But its understanding was that option couldn’t be discussed unless the property was in default.
“As soon as we went into default, they took the property,” Ferchill said.
“It’s hard to believe with all the stuff we had done, we were naive,” but The Ferchill Group had never had a commercial mortgage-backed securities mortgage before, he said.
“Out of 91 projects, I lost two. That was one of them. … That’s why we never do mezzanine lenders now. We learned that the hard way.”
GFI, which also owns Providence at Harbour Club apartments in Belleville, is no stranger to the hotel business. Its Ace Hotel New York and Ace Hotel Palm Springs — which is in a former Howard Johnson hotel — have both been recognized among the top 10 trendiest hotels in the world by Travel & Leisure.
Its portfolio also includes The Beekman and The Nomad, high-end hotels in Manhattan and New York City, respectively; and the boutique-like hotels Bond Street in downtown Brooklyn and Old No. 77 Hotel & Chandlery, a joint acquisition with Provenance Hotels, near New Orleans’ art warehouse district.
GFI Hospitality LLC, which has also operated Marriott and Starwood properties in the past, serves as asset manager for the hotels.
Each hotel creates an experience for guests, Gross said. For example, no two rooms at the Ace Hotel in New York are alike.
With the Hilton Garden Inn, “We don’t just want to get by with brand standards. We want to make it a great experience.”
A 114-space parking lot that is leased until March 2019 to an undisclosed parking lot operator came with the hotel.
GFI is still getting to know its new Detroit hotel, he said. “It’s like you just got married and (you’ve) got to get used to seeing her without her makeup.”
A $1.4 million renovation of the lobby, American Grill and Chrome Grill restaurants, its 3,500 square feet of meeting space and certain guest rooms was completed in 2012.
GFI plans to build on that with a renovation of the 198 guest rooms, but it’s too early to know exactly what that will entail and what the needed investment will be, Gross said.
It has kept Fairfax, Va.-based Crescent Hotels and Resorts LLC on to oversee the day-to-day operations of the hotel, which has maintained an average daily occupancy of about 75 percent, he said.
“Our job is to see with our knowledge what we can add to the equation … to get the guest rooms a little more sharp (and) get the market to understand who we are. We run a class operation.”
GFI also plans to open a new restaurant at the hotel, preferably one featuring a local restaurateur offering first-class food and drink, Gross said. That’s something it’s done at its hotels in New York and Los Angeles, which include Michelin-starred restaurants today.
Still, GFI understands who its audience is with the Detroit hotel, he said.
“We’re very excited about everything happening there,” with the new Red Wings arena, Comerica Park nearby and possibly basketball and soccer coming into the city.
“I’m also very excited about Paradise Valley … if you have a restaurant row … (that) will get people to stay in the city.”