LOS ANGELES—Driftwood Hospitality Management is looking to grow its portfolio by two contracts per month, or 10% to 15% annually, during what promises to be a busy year for the North Palm Beach, Florida-based management company.
The company, which had 32 hotels under its wings at the start of the year, already is making good on that aim. It added two management contracts during January: the 119-room Holiday Inn Express Tampa-Brandon in Florida and the 133-room Courtyard by Marriott Dallas NW Hwy. at Stemmons/I-35E.
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Brian Quinn
Executive VP of Driftwood Hospitality Management
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“In order to have the company operate optimally and get the highest investment use out of the talent, we need to grow in that 10 to 15% range,” said Brian Quinn, the company’s executive VP, during a break at last month’s Americas Lodging Investment Summit in Los Angeles.
The two most recent additions are “poster children” for what Driftwood wants to do, he added. Both are above one hundred rooms and have a bit of distress. This allows for the opportunity to enhance value with new management and renovations.
Renovations have emerged as a particularly prescient theme for the company. Five of its properties are in the midst of improvements totaling approximately US$17 million in capital expenditures.
“Maintaining hotels … this is a very deep recession and for us to work our way out some of the basics need to be handled,” Quinn said of the upgrades.
The renovations are being funded through a variety of sources: owner’s equity, CapEx financing, lease and Driftwood’s own reserves. The company, through a joint venture with Apollo Global Real Estate, has a US$400-million fund to aid in the purchasing, renovating and reflagging of full-service hotels across the United States. The JV has spent about 10% of that fund to date and is eyeing new opportunities carefully to ensure return on investment.
“We’re also living through that fact that there’s not as much supply on the market that everyone had originally envisioned,” Quinn said.
Banks stepping up
Quinn has been pleasantly surprised by the big banks’ willingness to step up to maintain the value of distressed assets that have landed on their balance sheets. Smaller secondary and regional players, on the other hand, have been slower to adopt a similar practice.
The Driftwood executive VP called it a sound investment strategy. After selling off assets at deep discounts in the shadows of the Resolution Trust Corporation during the recession in the 1990s, major banks sat back and watched hotel values rebound dramatically in 1993, 1994 and 1995.
“I think the banks looked back and said, ‘Wow, maybe we shouldn’t have sold because the valuations popped back,’” Quinn said.
While he expects those distressed assets to come back to market eventually, Quinn said “it’s not going to be the feeding frenzy that everybody had hoped.”
‘Guarded optimism’
Quinn cited the oft-used term to sum-up the sentiment at ALIS.
“Everyone’s using ‘guarded optimism,’” he said. “… The hotel business fundamentals are strong. Supply is not coming on. Demand is up. Business travel is up. Leisure travel is up. I think we’re hopefully through the worst of the unemployment piece.”
“There’s pent-up demand, both corporate and leisure. Eventually, you’ve got to go see grandma,” he added.
The only thing holding the industry back is the real-estate side of the coin, Quinn said. But that will heal if fundamentals remain as strong as they have been for the past few months, he said.
