Lodging Fund REIT III Inc., a publicly registered non-traded real estate investment trust, has hit a snag related to the acquisition of three hotel properties after the REIT and seller exchanged written notices of default with one another, according to a filing with the Securities and Exchange Commission.
In November 2019, Lodging Fund REIT III signed a purchase agreement for a 108-room Fairfield Inn & Suites by Marriott hotel in Hershey, Pennsylvania; a 107-room Home2 Suites by Hilton hotel in York, Pennsylvania; and a 100-room Hampton Inn & Suites by Hilton hotel in York, Pennsylvania for approximately $46.9 million plus closing costs. The due diligence period expired on February 17, 2020.
Collectively, the seller is Central PA Equities 17 LLC, Central PA Equities 19 LLC, and Springwood – FHP LP.
The REIT deposited $1.5 million into escrow as earnest money pending the closing or termination of the purchase agreement.
Beginning on July 31, 2020, the REIT and seller exchanged written notices of default with one another, alleging that the other failed to perform its obligations under the purchase agreement. No details were provided about the notices of default in the SEC filing.
The purchase agreement gives the seller and buyer 30 days to remedy the alleged defaults, or the agreement will terminate, and the parties will need to determine how to dispose of the earnest money deposit.
Lodging Fund REIT III claims that the parties are currently discussing potential modifications to the timing and terms of the hotel acquisitions.
Lodging Fund REIT III was formed in April 2018 to invest in limited-service, select-service and extended stay hotel properties located primarily in “America’s Heartland,” which the company defines as the geographic area from North Dakota to Texas and the Appalachian Mountains to the Rocky Mountains. The REIT raised $68.7 million in investor equity, as of the first quarter of 2020, and launched a $100 million private offering in June 2018. As of March 31, 2020, Lodging Fund REIT III owned a $102 million portfolio of seven hotel properties with a total of 706 rooms located in six states.