Short Supply Drives Hotel Sale in Philadelphia

Hersha Hospitality Trust
The Rittenhouse Hotel in Philadelphia

Hotel owner Hersha Hospitality Trust is buying close to home with its purchase of the luxury Rittenhouse Hotel in downtown Philadelphia, Hersha’s headquarters city.

Hersha, a real-estate investment trust that owns 66 hotels in major U.S. markets, bought the 111-room Rittenhouse, 44,000 square feet of attached offices and retail space and an adjacent parking garage for $42 million. Including anticipated renovation costs, the cost attributable to the hotel on its own amounts to $23.9 million, or $215,000 per room. The deal closed Thursday.

The 23-year-old Rittenhouse becomes Hersha’s 11th hotel in the Philadelphia market. Hersha bought the hotel from investment group Rittenhouse Development Corp., led by one of the hotel’s original developers, David G. Marshall.

Hersha Chief Executive Officer Jay Shah said the company will renovate the Rittenhouse, but those plans aren’t finalized yet. “The Philadelphia market across the next four years is going to be very strong,” Mr. Shah said. “You’re not going to have any new supply of significance in that four-year period.”

Indeed, the Philadelphia hotel market has grown at rather tepid rates of late. It added 1.9% to its room base in 2009, 1.8% in 2010 and 0.9% last year, according to hotel research company Lodging Econometrics. The company predicts the market will expand by another 2.3% this year and 1.3% in 2013.

Meanwhile, that relative lack of new competition has been a boon for existing hotels in the area. Philadelphia hotels posted a heady 9.5% gain in revenue per available room last year, according to hotel market analysis firm PKF Hospitality Research. PKF predicts the area’s hotels will notch a gain of 4.8% in revenue per room this year and 8% in 2013.

The Rittenhouse, with average rates of $325 to $540 for standard rooms and $650 to $3,000 for suites, includes meeting rooms, a restaurant, a bar, a spa, a salon, a swimming pool and a fitness center. Its past guests include actor Robert De Niro, Rolling Stones frontman Mick Jagger and opera singer Luciano Pavarotti.