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Ahead of Texas-Sized Flood of New Hotels, Brookfield Puts Luxury Hotel on Market in DFW

The Highland Hotel Near Highland Park is Expected to Fetch Upwards of $70M
May 7, 2018
A subsidiary of Brookfield Asset Management Inc. has placed a high-end hotel near Highland Park in Dallas on the market, with real estate sources expecting the would-be listing to garner bids of about $70 million.

The hotel arm of the publicly-held real estate investment trust has hired HFF to sell the 198-room The Highland hotel, which has 26,000 square feet of retail space, at 5300 Mockingbird Lane in Dallas.

The listing comes at a time when real estate developers in Texas have nearly 23,800 hotel rooms in the construction pipeline, with another 31,300 rooms slated to get underway this year - with Dallas-Fort Worth, thanks to robust job growth, getting more than its share of reservations compared to Houston, Austin and San Antonio.

Those bullish expectations are pushing prices in a hotbed for the hotel industry, said Chris Gomes, senior managing director for investments with Marcus & Millichap's Dallas office.

"In Dallas-Fort Worth, there's not a good amount of inventory for sale in the market," Gomes, a broker unaffiliated with the deal, told CoStar News. "There's still a wide gap between seller's pricing and buyer expectations. We thought with all the activity, the gap would narrow, but it hasn't."

Gomes said sellers have high expectations because it's hard to replace the cash flow of the hotels, with few of these properties on the market. For investors seeking to avoid the capital gains tax, it can be difficult to pull off a 1031 exchange with a lot of money on the sidelines.

"Right now, about 80 percent of buyers are 1031 exchange buyers because there's a lack of product," Gomes said. "Sometimes, the only reason investors are stretching and paying so much is because they would rather turn around and buy another property instead of paying capital gains taxes."

For Brookfield's subsidiary, THI VI Dallas Mockingbird LLC, that means the price of The Highland has increased considerably since a now-affiliate of the Toronto-based real estate investment firm acquired the hotel in Aug. 2014 for $48.5 million. Thayer Lodging was acquired by Brookfield three years ago.

The Highland, formerly known as Hotel Palomar, is being offered unencumbered by a management contract with the ability to terminate the Hilton Hotel's Curio Collection flag next year.

The nine-story building also has a level of ground-floor retail space that is 68 percent leased by four tenants, with a single-suite vacancy. Along with the retail space, the hotel has amenities, such as a high-end restaurant, 13,000 square feet of event space, pool and fitness center.

Along with other real estate investors, Gomes said Brookfield could be selling before the flood of new hotel rooms hit the North Texas market.

"A lot of developers are still bullish and still developing, and the new supply will hit the market hard," he added, saying he's advising his hotel-buying clients to use caution with conservative underwriting and plenty of equity.

Candace Carlisle, Dallas-Fort Worth Reporter  CoStar Group   
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