US Hotels specializes in upper-end boutique hotels, such as the historic White Barn Inn (above).
KENNEBUNKPORT, Maine—US Hotels Group is on the prowl, but there’s nothing stealthy about it. The family-owned hotel owner and operator is trying to make as much noise as possible as it looks to acquire upscale, boutique-style properties throughout the country.
“We want the world to know, the business community to know, the broker community to know … that we are a growing company and interested in expanding further,” said CEO Paul Hanley.
The company made good on that claim last month by acquiring 90% stakes in two luxury hotels from The Carlyle Group: The 49-room, 4-diamond Orchards hotel in Williamstown, Massachusetts, and the 32-room Centennial hotel in Concord, New Hampshire.
US Hotels Group
While Hanley would not disclose specifics of the deal, he said it “had a cash component in conjunction with the assumption of existing debt.”
The transaction was slightly atypical for US Hotels, which tries to acquire real estate outright, although he added that the properties themselves complement the group’s existing seven-hotel portfolio perfectly. The company has three, clear “5-star players” in its portfolio: The White Barn Inn & Spa in Kennebunkport, Maine; The Windham Hill Inn in West Townshend; Vermont; and Vanderbilt Grace in Newport, Rhode Island.
“But our other places, we refer to them more in the upscale market position. These two new ones fit snuggly in that.”
They’re also a good fit geographically, he said. Founded in Kennebunkport, US Hotels has focused primarily in upper-tier assets in the New England area.
“People absolutely love New England. From that standpoint, it’s an easy, easy fit because there’s a big overlap with our existing customer base,” he said.
Future expansion will continue to focus on the region, although Hanley said US Hotels—as the name implies—will be kicking the tires throughout the rest of the country as well. Targets include “counter-seasonal” locations such as Florida and the Southwest. The group might even expand its footprint into the Caribbean if the right opportunity presents itself, he said.
“That’s the reason why we named our company US Hotels,” he said. “Our vision is we see ourselves not only in the U.S. but North America and beyond. We were born in Maine. We’re now growing sustainably regionally. Our vision is to grow nationally and internationally.”
Selling the experience
One of US Hotels’ key differentiators is its unique and varied portfolio, Hanley said. While each hotel might fit the label of “boutique,” no one hotel is like the other—although each boasts an exceptional level of service.
“From our standpoint, we see ourselves as being in the experience business,” he said.
To keep the focus on the guest experience, company management has centralized a lot of the administrative tasks, such as accounting, human resources and facilities management.
“That way our innkeepers and the staffs are really able to focus on the customer and the experience at the local level. We have an operating model that really supports the particular, individual business. They have an absolutely minimum of bureaucracy,” he said.
“The reason (our customers are) choosing our kinds of properties rather than a typical branded lodging product is they’re looking for a more textured, more interesting, more authentic experience,” he said.
When asked about the proliferation of branded boutique hotels in recent years, Hanley said that only reaffirms the mission of US Hotels.
“What that reflects is a distinct change in the appetites, in the preference of the market. The market is speaking loudly there. The market is saying that they really appreciate attention to details, they really appreciate attention to the culinary side of the business, they really appreciate attention to quality artwork—all those things,” he said.
Hanley said he also welcomes the competition.
“To the extent that some of the larger players are executing against that … terrific. To the extent that someone may visit a W Hotel, great, because when they come to us, they’re going to be even more thrilled. What some of the larger players are doing is in a sense trying to recreate, trying to emulate some of the components that you find in small, upscale inns and boutique hotels that are found particularly in New England. New England really is a treasure trove of those types of places.”
Debt and deals
Hanley spends as much as 70% of his time searching for new acquisition opportunities, he said. The experience has left him somewhat frustrated by the deals landscape.
“The bid-ask gap still exists,” he said. “A great many properties were acquired or financed pre-Lehman Brothers. In many areas the market has not really returned, whether it’s by virtue of existing debt structure or hopes and dreams of the equity of regaining as much of their equity as possible.”
There has been some loosening of debt financing, he added.
“Whereas a couple of years ago financing from hospitality assets, particularly from the banking community, was nonexistent, today there are more banks taking a look at hospitality assets,” he said.
But loan-to-value and debt service ratios are more conservative than in the past. Hanley is seeing LTVs ranging from 65% to 75%, with DSR of 1.1% to 1.45%.
“They really vary depending on the quality assets, market circumstances, the quality of the collateral,” he said.