ACQUISITION RENOVATION & MANAGEMENT
SHERATON ARLINGTON
Arlington, TX
The Sheraton Arlington is a premier property that has recently undergone renovations to enhance the guest rooms and meeting spaces. As a bonus, the hotel offers a complimentary shuttle service to DFW airport and provides free self-parking for added convenience. Situated in close proximity to several major corporations such as General Motors, D.R. Horton, Texas Health Resources, and UTA, this hotel is a preferred choice for business travelers. Furthermore, it holds the distinction of being the closest full- service property to the vibrant entertainment district, which includes popular attractions like the Rangers Ballpark, AT&T Cowboys Stadium, Texas Live, Six Flags, and Hurricane Harbor Waterpark.
Moreover, the Sheraton Arlington enjoys a central location equidistant to Dallas and Fort Worth. Adjacent to the hotel is the Arlington Convention Center, expanding the available event space by an additional 100,000 sq. ft., complementing the existing 26,000 sq. ft. of flexible meeting space within the hotel. With the addition of outdoor meeting spaces and the serene waterfalls in the vicinity, the Sheraton Arlington offers a truly unique and unparalleled setting for any event. Amenities provided by the hotel include in-room safes and refrigerators, options for club-level upgrades, jogging trails, poolside dive-in movie screenings during the summer months, and a dedicated team of experienced guest service specialists.
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311 renovated guestrooms
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Located in the Entertainment District of Arlington, TX
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Conveniently located between Dallas and Fort Worth, TX
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Free airport shuttle
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Onsite catering
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Onsite gift shop
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Onsite restaurant
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Pet friendly
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Rental car service
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Health club / Outdoor pool / Spa / Salon
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Tennis courts / Whirlpool
INVESTMENT SUMMARY
As a Marriott brand in a rapidly developing metro area of Arlington, TX, Urbana saw the Sheraton Arlington as an attractive property to take ownership of and acquired the property in October 2014. Financially, the property had been performing well (Sep 2014 NOI of $3.5m) but needed a substantial brand-mandated Property Improvement Plan (PIP). Urbana sought 40% of the equity ownership coming from UVOF II with 60% coming from an institutional equity partner. As of time of writing, Urbana still owns and operates the Sheraton Arlington, and the property has been an unmitigated success for the company and its investors.
OPPORTUNITY
Built in 1985, the Sheraton Arlington is quite a large property and with that, comes with the amenities befitting its size (including 311 guestrooms, 32,000 square feet of meeting and event space, an outdoor pool, and 521 surface parking spaces). The Sheraton Arlington is also bolstered by being located next door to the Arlington Convention Center, while also being the city that is home to the Dallas Cowboys and Texas Rangers, which brings a heavy influx of sports tourism to the area. From these factors, the Sheraton Arlington had a lot of opportunity to be a sound investment:
• Strong current yield as the property was purchased at a well below market Capitalization rate – 9.7%.
• Superior location - proximity to local demand generators and event/meeting facilities compared to competitive set.
• Acquired well below Replacement Cost
• Favorable long-term ground lease with City of Arlington
• Strong year-over-year growth in ADR and occupancy
INVESTMENT CHALLENGES
Even though the property had undergone a recent renovation project in 2007 before Urbana’s purchase, Marriott required an additional PIP with the change in ownership. Originally budgeted at $4.3 million, Urbana was able to complete the 3 phase PIP for just under budget at $4.2 million. Improvements were made to most areas of the property, with the biggest being made to guestrooms and guest bathrooms. In mid-2017, after meeting and consulting with investors, it was determined that the Sheraton’s lobby needed an extensive renovation beyond what improvements were made in the PIP. The decision was taken to expand Phase III of the PIP to account for this renovation at the cost of $1.7 million. The decision was based largely on the thought that the modest improvements that were already planned for Phase III would not greatly increase operating revenue, and by making the communal first floor areas (largely the restaurant and bar area) more welcoming to guests would have a much bigger impact on the bottom line and help keep competitive with the Arlington Hilton.
ACTION PLAN
Urbana’s action plan was simply for The Sheraton – Arlington partially because the location of the asset assisted so well in the increase in value over time. With the asset being walking distance to Dallas amenities such as AT&T Stadium, the Texas Rangers stadium, and Six Flags over Texas there were few bad months, with the exception of COVID-19. That said, Urbana did spend about $6.5m on renovations over the hold period in which our team upgraded the lobby area, the restaurant/bar on the main floor, and the guestrooms overall. At time of purchase in 2014, the running twelve-month ADO was 71.4% and ADR was $129.78 and at the time of sale the asset’s ADO was 64.9% - account for recovery post pandemic – and ADR was $149.
OUTCOME
The overall outcome of The Sheraton – Arlington purchase turned into one of the most lucrative investments in Urbana Holdings’ history boasting a hefty return on both IRR and capital return multiple and a continued leaseback to Urbana from the purchaser through 2026. An overall merit of effort to maintain, improve, and execute operationally the asset to the potential Urbana knew it had in 2014.
PERFORMANCE METRICS
The Sheraton Arlington was sold in July 2022 for $55,376,623 or $178,060 per key yielding an Internal Rate of Return of 15% and a Capital Return Multiple of 2.25x. Urbana currently leases back the property to the buyer through 2026.