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Cerberus, Chatham acquire Innkeepers hotels for $1.02bn

A joint venture between the New York-based private equity firm and the Palm Beach, Florida-based hotel REIT has acquired the 64 hotels owned by Innkeepers for $1.02 billion. Innkeepers subsequently has emerged from Chapter 11.

After previously walking away from the deal, a joint venture between Cerberus Capital Management and Chatham Lodging Trust has acquired a portfolio of hotels from Innkeepers USA Trust for slightly more than $1 billion. As a result, Innkeepers has completed its restructuring and emerged from Chapter 11. 

In an announcement by Chatham, the venture between the New York-based private equity firm and the Palm Beach, Florida-based hotel REIT successfully has acquired the 64 hotels owned by Innkeepers for $1.02 billion. This is a slight discount from the previously agreed-upon $1.12 billion price tag. The US Bankruptcy Court for the Southern District of New York approved the sale last week.

In May, Cerberus and Chatham had agreed to purchase the 64 hotels for $1.12 billion, but the pair backed out of the deal in August, citing an “adverse effect on the business”. As a result of backing out of the deal, Innkeepers filed a lawsuit against Cerberus and Chatham, seeking to force the buyers to close on the sale. However, a last-minute settlement was negotiated before the lawsuit went to trial. 

Cerberus owns just shy of a 90 percent interest in the venture, with Chatham owning the remaining 10 percent. All but one of the 64 acquired hotels will continue to be managed by Island Hospitality Management, a hotel management company that is 90 percent owned by Chatham's president and chief executive officer, Jeffrey Fisher.

According to a separate announcement from Innkeepers, the sale of these hotels to the venture has helped enable the formerly bankrupt company to successfully emerge from Chapter 11. Subsequently, a “substantial majority” of Innkeepers' unsecured creditors are expected to receive a recovery of more than 90 cents on the dollar.

Innkeepers and 91 of its subsidiaries opted to file for Chapter 11 bankruptcy protection in July 2010 because of its debt load – reported at the time to be $1.4 billion – hindered its ability to maintain and upgrade properties. 

Innkeepers' chief restructuring officer Marc Beilinson, a principal at Beilinson Advisory Group, said in a statement: “Chapter 11 gave us the time and financial resources from our debtor-in-possession financing to renovate and revitalize the properties. It also allowed us to maintain good relationships with our franchisors and vendors. As a result, the company is emerging with higher revenues and stronger operations than when it entered Chapter 11.”