We believe that the boutique and independent hotel segments offer some of the best investment opportunities in hotel real estate due to a combination of growing consumer demand and opportunities for outsized performance improvement due to inconsistent execution by inexperienced owners and operators in this niche.
Primary Urban Markets & Select Leisure Destinations
We focus on primary urban markets and select leisure destinations with diversified and growing demand characteristics and high barriers to entry. We also selectively pursue opportunities in secondary markets with high average daily rates where the boutique hotel product we create stands out among the competition.
Controlling Equity Position
We pursue control oriented equity investments that generally take the form of whole ownership or joint venture structures. Our targeted equity commitment is typically between $10 and $40 million, but we will selectively invest in assets requiring both smaller and larger commitments.
Existing boutique hotels in good physical condition that will benefit from our rigorous approach to asset management and a change in management and/or brand.
Renovation / Repositioning
Existing hotels in desirable locations and in need of renovation and/or market repositioning. These properties are well located, but are failing to perform to their full potential due to a combination of their physical state and management and/or brand affiliation.
Buildings (office, government, warehouse, medical, etc.) that are well located and suitable for conversion to hotels. These properties can often be acquired with limited competition, well below replacement cost, and are often eligible for historic tax credits.
Select ground-up development projects where supply and demand fundamentals support new construction and land can be purchased at a favorable price with entitlements already in place.
Value-Add + Well Located
We understand that lodging is a cyclical business, which is directly affected by the interplay of supply and demand and is highly correlated with overall economic growth. We therefore focus on more complex value-add investments that are less dependent on underlying market growth. We invest in well located properties in high barrier to entry markets to further insulate against cyclical risk.
We seek deals with asymmetrical risk, with an underlying goal of capital preservation. We use scenario modeling to predict a range of potential outcomes and identify deals with more upside than downside.
We seek deals with limited competition and we source many of our acquisitions directly. To the extent we compete in broadly brokered auctions, we pursue deals where our competitive advantages have the potential to create more value than those with whom we are competing.
Discount to Replacement Cost
We generally seek to acquire properties at meaningful discounts to replacement cost. We will also seek to redevelop at a discount to replacement cost, buying underutilized buildings at a fraction of their cost and utilizing historic tax credits and other incentives to offset redevelopment costs.
We maintain a moderate leverage strategy and do not employ excessive debt (which creates excessive risk) to reach targeted returns. We target unlevered return hurdles consistent with risk and then derive targeted equity return hurdles based on leverage levels.