|The Crowne Plaza Columbus North in Ohio was acquired by Waramaug as part of a joint venture in January.
BOCA RATON, Florida—A property’s upside potential is always a key ingredient when considering a hotel transaction. But the speed at which that potential can be reached is just as important, according to Jay Litt, asset manager at Waramaug Hospitality Asset Management.
The company, has acquired a handful of assets during the past year and a half, including the Sheraton Denver Tech Center in Colorado (February 2011); Crowne Plaza Tampa East in Florida (October 2011); and the Crowne Plaza Columbus North in Ohio (January 2012). The properties were acquired via a joint venture established with Interstate Hotels & Resorts and an undisclosed private investment group.
And in two weeks, the company is expected to close on its deal for the Williamsburg Hotel & Conference Center in Virginia. Including the Virginia deal, the JV will have five properties in its portfolio.
In each of the acquisitions, the JV launched renovation programs aimed at hastening the ramp-up process for the hotels. In the case of the Crowne Plaza Tampa that was acquired in October 2011, the JV spent approximately $19 million, including renovation costs, and is converting the property to a Sheraton. The total renovation of the asset was completed in seven months, Litt said.
In its acquisitions of the Columbus Crowne Plaza and Denver Sheraton, the JV said it intended to spend $11 million total in renovations. Each of those properties will retain their respective flags.
Waramaug Hospitality Asset Management
The company’s total property improvement plan budget is between $75 million to $80 million.
Deferred maintenance on properties is one of the driving forces behind Waramaug’s ability to make deals, Litt said.
“Banks are realizing deferred maintenance is adding up, and (they) should be putting hotels out to sale,” he said. A strong project management team helps ensure renovations are done quickly, he added, and Interstate’s help in doing due diligence on deals also helps quicken the process.
Litt—who previously worked for ITT Sheraton and was the chief procurement officer for the former real-estate investment trust Patriot American Hospitality that acquired Interstate Hotels in 1997 before its merger with Wyndham International—said the company has plans to remain active in making acquisitions.
“We will continue to purchase,” he said. “We think that 2012 and 2013 will be a very vibrant time to buy assets.”
The fundamentals of the overall hotel industry are strong, he said. “We’ve weathered the worst of the storm,” Litt said.
Including money spent on PIPs, the JV’s hotel transactions budget is between $175 million and $200 million. Litt said Waramaug will typically buy properties in a range of between $7 million and $13 million. All of the acquisitions are purely equity-based, he said.
During the next 15 months, Litt said it’s possible the JV could acquire at least 10 additional hotels.
The JV is targeting upper-upscale properties in the 3- to 4-star category, he said.
“We have a very high threshold for (internal rate of return),” he said. “We buy assets that have an opportunity for upside; typically a lot of deferred maintenance.” In some cases, Litt said, the PIP cost actually equals the acquisition cost.
In addition to the maintenance concerns of the hotel, Litt said one of the biggest challenges in striking a deal today is finding owners who can actually close. There also is a lot of competition over the same assets.
“It’s a matter of spending time talking to people who have assets to sell,” he said.