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 focus on well located properties in high barrier to entry markets to further insulate against cyclical risk.
Discount to Replacement Cost
We acquire and re-develop at a discount to replacement cost in an effort to ensure that our all-in cost basis provides a solid foundation for value-creation. 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 focus on opportunities with more upside than downside, with an underlying goal of capital preservation. We use scenario modeling to predict a range of potential outcomes and identify deals with positive long term capital growth prospects.
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.
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.