Baltimore's only 5-star hotel is for sale

`Top dollar' expected for Harbor Court complex

One Market Center also on block

July 21, 2005|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

The Harbor Court Hotel, one of the Inner Harbor's early high-profile projects and Baltimore's only five-star hotel, is for sale and is expected to generate strong interest from buyers at a time when hotel values are rising and investors face a shortage of luxury hotel deals.

Harbor Court, which opened in 1986 and helped give the city an aura of elegance and sophistication, is being sold by its original owner and developer, Los Angeles-based David Murdock.

Murdock, a multimillionaire Los Angeles financier who wowed city officials two decades ago with the upscale waterfront project, is also selling his only other city property, the One Market Center office and retail building at Howard and Lexington streets on the west side. There, in the 1980s, Murdock had ambitious but unfulfilled plans to spend up to $250 million to revitalize the city's traditional Howard Street retail district.

Harbor Court, which includes a 195-room hotel, 72,000 square feet of office space and an attached parking garage, as well as condominiums not included in the pending sale, once represented the largest single private undertaking in Baltimore's history when developed at a cost of $85 million.

"Given the Baltimore market, the terrific status of the hotel and the general overall economy, we think it's a good time to sell," Ed Roohan, president and chief operating officer of Castle and Cooke, the development company owned by Murdock, said yesterday.

Real estate experts expect the hotel property to fetch top dollar at a time when investor interest in lodging has outpaced available properties. With its prime Inner Harbor location and a reputation as a well-managed, well-maintained boutique hotel, Harbor Court should draw strong interest, especially given the city's strong hotel market.

"It is a very opportunistic time to be a seller," said Rod Petrik, a managing director and lodging analyst at Baltimore-based Legg Mason Wood Walker Inc. "There's a lot of capital and a lot of liquidity in the real estate market overall, which would include hotels. Today, there's probably more capital chasing deals than there are deals available."

Harbor Court has a reputation as the top hotel in one of the better secondary hotel markets, he said.

Hotel values have appreciated 20 percent to 25 percent in the past year, thanks to low interest rates and greater demand than supply, Petrik said.

"Fundamentals have clearly improved in the lodging industry, but it's also a case where you have interest rates that have remained low," he said. "There seems to be more demand for product than supply, and that has driven prices up."

Within the lodging sector, the demand for luxury hotels has been strong, said Kevin Mallory, a senior managing director of CB Richard Ellis Hotels, the broker selling the property. That's because most of those are located in prime center city locations and not as susceptible to the volatility of the marketplace, Mallory said.

"There are few five-star properties on the market today, so we expect this to receive a great deal of attention," Mallory said.

With large, urban hotels selling this year in a range of $220,000 per room to $289,000 per room in cities larger than Baltimore, the Harbor Court hotel portion could fetch more than $200,000 a room, or at least $39 million, Petrik said. But with the hotel's earnings before interest, taxes, depreciation and amortization projected at nearly $5.3 million this year, according to CB Richard Ellis Inc., the hotel could be worth even more, Petrik said, as much as $325,000 per room, or $63 million.

One of the first upscale hotels in a transformed Inner Harbor, Harbor Court remained privately owned and operated during its two decades and maintained its reputation for service and upscale amenities.

"Over the years, it's never lost any of its luster," said Owen J. Rouse Jr., a senior vice president and director of investment services for Manekin LLC, a Columbia-based real estate company. "It never got tattered. It was always so well-maintained, and it continues to be the nicest facility in town in terms of service."

The hotel has gained brand recognition from those who travel to Baltimore.

"There is a segment of the travel industry that likes the smaller, boutique-style hotels," Rouse said.

Though the hotel may not have the advantages of a large chain, such as a chainwide reservation system, it should be attractive to buyers for other reasons, he said.

It is a self-contained complex, with banquet space, parking, restaurants and a spa, and has three income generators: the hotel, with an average room rate this year of $234 according to the CBRE sales offering, the offices and the 530-space attached garage.

"I think given the investment climate in Baltimore, that kind of property will fetch top dollar," Rouse said.

Murdock, who also owns two hotels in Hawaii, and is building a hotel in Los Angeles, decided to sell Harbor Court, in part to shift his company's focus away from hotels and more on residential and other commercial development projects, said Roohan of Castle and Cooke.

"As we look down the road in the next five to 10 years and where we want to invest, we will focus on other investment opportunities," Roohan said.

Roohan said the company is also selling One Market Center, a seven-story building with more than 200,000 square feet of office and retail space. In the mid-1980s, the building - on the site of the former Hochschild Kohn department store - housed a financially struggling Hutzler's Palace, adjacent to the original Hutzler's department store.

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