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Shah: Noble diversifies its approach to growth
March 25 2010

As a longtime owner of hotels, Noble Investment Group intends to continue looking for assets to acquire while planning to use new capital to get into the debt side of the business. Read the story. Read the interview transcript. Watch video highlights.

ATLANTA—The hotel industry’s performance during the past few weeks has piqued Mit Shah’s interest. The senior managing principal and CEO of Atlanta-based Noble Investment Group likes what he sees when he peeks at the data for March.

Mit Shah

“We always talk about things like, ‘Is this a blip, or is it a trend?’” he said during an interview at the 22nd annual Hunter Hotel Investment Conference in Atlanta. “The more you string along weeks where you have some positive (revenue per available room) growth, it starts becoming more of a trend. I don’t think that should be surprising, because you’ve got business leaders getting on planes, getting in their cars, and they’re going out and seeing both existing and prospective customers, looking to generate business to start moving forward.”

The number of consecutive weeks with year-over-year RevPAR growth reached three this week, and Shah is optimistic that more good news lies ahead—although he said there is one major unknown indicator.
“The Federal Open Market Committee not moving rates was a very good indication,” he said. “When you look at jobless rates and maintaining the unemployment level, while it’s not a good number—much like the current RevPAR isn’t a good number—at least it’s not continuously moving up at an aggregate. Those are things that we pay attention to.

“… I’m worried about job recovery, and it’s a worry that is shared by many,” he added. “When do we actually start increasing jobs … not the minimum jobs needed to keep unemployment the way it is right now … but really start adding jobs? That’s a fundamental concern.”

He also said the amount of debt the United States has taken on is a concern because of the long-term affect it will have.

Noble’s strategy

All of that affects Noble’s strategy. The company owns 43 hotels in 15 states. Its 8,474 guestrooms are in hotels that run the gamut from premium, limited-service brands to extended-stay brands to full-service upscale and upper-upscale to two luxury W Hotels. The portfolio is skewed toward the upper-upscale segment.

Shah clearly wants to see the company grow.

“Our chief focus is finding investments that are going to be actionable,” he said.

Competing against the billions of dollars of equity waiting to pounce on quality assets as they become available doesn’t worry Shah. Although he calls the amount of capital ready to invest “prolific,” he knows his company will be in the mix.

“To the real-estate investor, you can clearly see that lodging debt has gone from (US)$3 billion in default in January of 2009 to (US)$35 billion in default by the end of the year and more is coming,” he said. “But if all the capital is chasing that level of distress, how opportunistic will it really be? How actionable will it really be?”

Money to spend

Noble has about US$200 million of a US$310 million acquisition fund to spend. Shah said that because his company only focuses on hotels, it will have an advantage.

“Lodging companies that have true competencies, true skill, discretionary capital, have the ability to do things that are unique, will succeed over the billions of dollars that are just coming into the business that understand lodging but don’t have the operating capabilities, redevelopment capabilities, the abilities to work with all the brands,” he said.
Noble will work with its brand partners and its network of contacts at smaller, regional owner-operating companies to find its acquisitions.

“When you look at what they’re facing, they still have quality assets, and real money in their assets,” he said. “But the regional lender—Frank Smith down the road that’s been lending them money for 10 to 15 years—isn’t there. He’s worried about their balance sheet, relative to what the (Federal Deposit Insurance Corporation) is looking for; and a simple extension, which was very cursory in times past, is very difficult.

“These are opportunities for our organization because we started the business in that sector of assets,” he added. “We’ve grown in all other segments of the business, but this is where we know the owners, we know the quality and integrity of how they operate.”

He said this capital-starved group of assets provides an opportunity for Noble to be an investment vehicle. It has the Noble Hospitality Fund and with the help of new senior advisor Joe Green, Shah plans to raise more equity to invest on the debt side of the hotel industry.

“Because it is a fragmented industry, there is a fragmented lending group and there’s an opportunity to go and build a real business around that,” he said. “We saw an opportunity since the capital markets weren’t going to come back very soon. There would be some debt in the marketplace, but most of the debt was going to be focused on the upper-upscale segment. We also viewed that this premium, limited-service and extended-stay segment of the business was very opportunistic.”

Signs of recovery

Shah said Noble’s track record will help it convince owners in need of help to form a partnership with the company. His company’s hotels have recently shown signs of a recovery.

Noble Investment Group’s Hyatt Regency Valencia (California) has 244 guestrooms and 11 suites.

“We’ve actually seen about 80 percent of our hotels gain RevPAR year-over-year,” he said. “Some of that is because we’ve put a lot of money into our assets. We’ve invested about (US)$80 million in renovations and repositionings, just in the last 12 to18 months. We’re also seeing about 60 percent of the markets we’re in actually had year-over-year RevPAR increases. We clearly see an indication that the business transient customer is starting to pick up.”

He said there’s still a challenge on the group side, but there is reason for optimism.

“Rate is still an issue. Hardly anyone signed (requests for proposal) last year but they’re paying the RFP rate,” Shah said. “We’re seeing less negotiating at the table. As demand continues to increase, we’ll be able to protect rate a little bit more and get to a point where demand is moving up, and where rates were relatively flat we’ll start inching forward.  Group is going to have a lot to do with that. As soon as we start seeing some ability to price group accordingly, you’ll start seeing some momentum on RevPAR”

So when will the recovery hit full stride?

“Sometime between the end of the summer season and the beginning of the business season—end of August, early September—we’re going to start seeing positive RevPAR growth with positive rate,” he said.

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