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Real Estate Titans See Opportunity

The hotel real estate market is heating up. Here’s how top investors are leveraging the boom times.

Wednesday, June 04, 2014
Glenn Haussman
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The hotel industry real estate sector is treating a lot of private equity companies very nicely. At least those with the smarts to be buying and selling hotels as hotel valuations continue to outperform. For those looking to make money in hotel real estate these are the deal making days and many major companies are buying, selling or doing a combination of both to extract more profits out assets.

We didn’t want to give this critical portion of the market short shrift, so while attending the NYU International Hospitality Investment Conference this week we got the scoop on what some of the industry’s top private equity players are doing to maximize this upswing.

And while these companies’ strategies may deviate there is one major through line, they all look to find value in properties, maximize their potential and then consider selling them.

“We continually churn our portfolio. It is really a buy, fix, hold for a bit and sell strategy,” said Suril Shah, SVP with Starwood Capital Group. “For us it is about acquisition and specific cost.”

His company is in the middle of several development deals in top five markets such as four properties in New York City that includes the former Gansevoort and a Margaritaville resort in Florida.

Merrick Kleeman, Managing Partner of Wheelock Street Capital said his company is investing in everything from select service hotels in gateway markets to luxury assets.

“Select service has attributes of high cash flow and less volatility and are very good to own at late parts of cycle but they are more easily susceptible to competition,” said Kleeman. “However, if things go well you will make more money in full service. You don’t see a lot of supply here because it has a high barrier of entry but they will fall quicker than select service properties.”

Mit Shah, CEO and Senior Managing Principal, Noble Investment Group said they keep to this precept: Stick to what you know and you can execute on.

“Being good at something is not good enough. Pick something you are great at and do that,” said Shah.

One strategy his company follows is focusing on markets that have a latent demand stream such as universities and office parks. “They may not have as high a peak, but they are not as susceptible to valleys,” said Shah.

Cia Buckley, Chief Investment Officer with Dune Real Estate Partners follows a different success path than the others. She said her company’s goal is to own assets that are harder to replace.

“We do a lot of restructuring and debt transactions for unique assets that can stand the test of time,” said Buckley, whose company is building a Four Seasons hotel at the Walt Disney World Resort, which is set to open in about a month. “Being on lookout for trophy assets can be a good strategy.”

One of those trophy assets is The Standard Hotel which opened in December 2008 over the Highline in New York City. And even though it opened up at the dawn of the Great Recession she said by focusing on properties such as this one that is not easily replaceable market timing within the industry cycle I not as relevant.

Also these real estate masters believe industry fundamentals will continue to drive valuations for the near future.

Suril Shah predicts at least two or three more years of RevPAR growth saying, “There is real potential opportunity for rate growth out there.”

Mit Shah said he sees the remainder of the year having the opportunity to really drive rate growth, which he explained will set his company up to sell $1 billion in assets next year.

Those fundamentals combined with a moderate new hotel supply increase should keep these real estate pros busy.

“The thing to watch is supply. It won’t hit 2 percent supply growth until 2016 so hopefully we will have a reasonably strong environment for the next few years,” said Kleeman.

And just how are these hotels getting paid for?

Says Buckley: “Capital markets have much more debt financing available now, which may be affecting markets for valuations. Debt isn’t really back, structured debt is back but it is not broadly offered through the industry yet and it’s focused on bigger owners and operators.”
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Glenn Haussman    Glenn Haussman
Editor in Chief
Hotel Interactive, Inc.

Bio: Glenn Haussman is Hotel Interactive's Editor-In-Chief, where he manages all editorial content for the hotel industry’s leading online information resource. In addition to publishing the daily magazine, he hosts a weekly on demand radio shows and develops educational content for the company’s BITAC and HI Connect Design ...
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