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Five Mile JV acquires Red Roof portfolio

In conjunction with Westmont Hospitality, the Stamford, Connecticut-based investment management firm has acquired $700 million in loans backed by 143 Red Roof Inns, thereby assuming control of the properties.

Five Mile Capital Partners has assumed ownership of 143 Red Roof Inns after acquiring $700 million in debt backed by the portfolio through a joint venture with Westmont Hospitality Group, the owner and operator of more than 500 hotels worldwide. The purchase price of the loans was not disclosed, but a Bloomberg report said the debt was purchased for 50 cents on the dollar.

As part of the deal, the partnership committed more than $70 million to renovate and upgrade the portfolio, which totals nearly 17,000 rooms. Westmont recently closed on a similar deal in conjunction with Dune Real Estate Partners, acquiring the debt backed by 51 hotels and investing an additional $20 million for renovation of the assumed properties.

Red Roof’s ownership, which includes Westmont and Citigroup, has been talking to creditors since defaulting on more than $750 million in loans involving 127 hotels in 2009, according to reports. The two debt sales, along with funding from the investment partners, have allowed Red Roof to complete its recapitalisation, according to the company.

“Now that the recapitalisation is complete, the investments from both the Five Mile and Dune ventures position the brand well for long-term health and profitability,” said Andrew Alexander, president of Red Roof, in a statement. “This committed capital provides long-term stability to the company.”

Five Mile has extensive experience in the hospitality sector, including its participation in a consortium that in March 2010 agreed to invest up to $905 million in Extended Stay Hotels under a recapitalization plan to allow the hotel chain to emerge from bankruptcy.

The Stamford, Connecticut-based alternative asset manager also made a failed bid to acquire 64 hotels from Innkeepers USA Trust earlier this year, losing out to Cerberus Capital Management and Chatham Lodging Trust. Cerberus and Chatham, however, terminated their agreement to purchase the properties for $1.1 billion last week, and Five Mile reportedly is in talks with Innkeepers to acquire that portfolio.

Red Roof has close to 350 properties in 36 states and Washington, DC. All the hotels involved in the recapitalisation have franchise agreements with Red Roof Franchising and will continue to be managed by RRI West Management, a Red Roof affiliate.