Grand Hotel Sale Resumes, Purchase Price Lowered

Pebblebrook Hotel Trust said in a Friday regulatory filing that it will pay $33 million to acquire the Minneapolis hotel-$3 million less than the $36 million price it originally agreed to pay before "significant and unanticipated matters" that it became aware of during the summer.

A real estate investment trust (REIT) that last month said it might back out of an agreement to buy The Grand Hotel Minneapolis now plans to purchase the property at a lower price.

In a Friday filing with the U.S. Securities and Exchange Commission (SEC), Bethesda, Maryland-based Pebblebrook Hotel Trust said that it will pay $33 million to acquire the local hotel-$3 million less than the $36 million price it originally agreed to pay.

Pebblebrook signed a purchase agreement for the hotel in late May and expected the transaction to close within 60 days. Then in a June 2 SEC filing, Pebblebrook indicated that the hotel's lender had acquired the property as a deed in lieu of foreclosure. Pebblebrook terminated its previous agreement and struck a new deal with the lender under which it would acquire the property for the same price, according to the filing.

On June 29, Pebblebrook and the hotel's current owner-listed in Hennepin County property tax records as a limited liability company operating under New York-based iStar Financial-agreed to extend the close by 30 days.

Then in late July, Pebblebrook said in a new filing that it needed more time to review “significant and unanticipated matters that we became aware of during our due diligence process,” adding that “there is significant uncertainty as to whether this acquisition will be consummated.” Pebblebrook said at the time that if it did elect to move forward with the deal, the terms of the sale could change.

The Friday filing didn't specifically name The Grand Hotel Minneapolis and instead referred to “an upscale full-service hotel in the Minneapolis-St. Paul region.” However, the previous purchase price and the background information listed in the filing was consistent with The Grand Hotel Minneapolis deal.

“During the company's due diligence period, the lease of one of the property's tenants was renegotiated,” Pebblebrook said in the Friday filing. “The reduced purchase price reflects the reduced annual rent under the renegotiated lease.”

Pebblebrook said in the filing that it expects to fund the purchase with proceeds from its initial public offering, which raised $350 million and was completed in December 2009. The deal is expected to close within 60 days and is pending customary closing requirements and conditions.

Pebblebrook Chief Financial Officer Raymond Martz said in early August that the REIT likes the Minneapolis metro area, which is one of its “target markets.” Two of Pebblebrook's largest shareholders are based in Minneapolis-Ameriprise Financial, Inc., and U.S. Bancorp.

The 140-room Grand Hotel Minneapolis is located at 615 Second Avenue South in downtown Minneapolis.