The investment company has plans to add up to 20 select-service properties during the next 18 months.
REPORT FROM THE U.S.—Waramaug Hospitality LLC is adding a select-service flavor to its hotel portfolio.
The company late last month said its affiliate Waramaug LS Hotels LLC acquired the 100-room Courtyard by Marriott Paducah West in Paducah, Kentucky, for an undisclosed sum. The hotel represents the latest deal for Waramaug’s new $150-million hotel acquisition platform aimed at the select-service segment.
Waramaug intends to acquire at least 15 properties during the next 18 months for the new select-service fund, though that number could total closer to 20, said Paul Nussbaum, the founder and managing partner of the select-service fund. The private investment group and its affiliates have already added five select-service properties comprising 606 rooms to the portfolio.
Nussbaum, who formerly served as CEO of the real estate investment trust Patriot American Hospitality Corporation, said the company decided to increase its exposure to the select-service segment because of how quickly the properties can generate a return.
“There you can quickly look at how it does against its (competitive) set,” he said. “You can ramp up quickly.”
There’s been a rush in the industry of late to acquire select-service hotels. Patrick Campbell, a principal at Wheelock Street Capital, agreed that yields tend to be higher with select-service hotels than they are with full-service properties. He said capitalization rates on full-service hotels tend to be around 5% or 6%, while select-service cap rates can range between 7.5% to 9%.
Nussbaum said Waramaug, which also has six full-service hotels in its portfolio, is looking for select-service hotels in secondary and tertiary markets, as is represented by the Paducah deal. The company, an all-cash buyer of hotels, is also seeking “right-flagged” hotels such as Holiday Inn Express.
The company has also entered into a joint venture with partner Interstate Hotels & Resorts to acquire properties.
“We think there’s a lot of competition in the marketplace and a lot of that competition is focused on the primary markets,” he said.
While Waramaug has added a select-service platform, the company is also still actively looking for opportunities to acquire full-service hotels as well as distressed debt, Nussbaum said. He said the company has 11 full- and select-service hotels in its portfolio.
As for how many full-service transactions Waramaug is looking to pull off this year, Nussbaum said there’s no hard and fast number.
“It’s just (acquiring) those that fit our criteria,” he said. “We have a lot of dry powder left in that fund.”
Nussbaum said the company hasn’t viewed the deals market as challenging. “Being an all-cash buyer, it’s not all that difficult to transact,” he said. Nussbaum credited Jay Litt, an executive VP and 40-year industry veteran, with aiding in Waramaug’s aggressive asset management of these properties once they are acquired.
The most difficult thing about doing deals today, he said, is actually in finding the opportunities in the first place, particularly when it comes to distressed assets.
“The difficulty is finding distressed (assets) for the type of transaction we really can believe in,” he said, adding it can be a challenge to find these assets that will generate the kind of returns Waramaug seeks.