Company has ‘equity’ in its name and game plan
13 FEBRUARY 2015 7:34 AM
Hotel Equities aims to have a 50% stake in its portfolio during the next 18 months.
LOS ANGELES—Atlanta-based Hotel Equities has changed its tack during the past three years to focus on having skin in the game when it comes to growing its portfolio.
Going from predominantly a hotel management company with a 10% equity stake in its portfolio three years ago, Hotel Equities now has equity in 30% of its portfolio with the goal of growing that to 50% during the next 18 months, said Brad Rahinsky, Hotel Equities’ president and COO.
“For the next few years, our goal is to have some sort of equity in every deal,” Rahinsky said during a break at the recent Americas Lodging Investment Summit. “That’s the long-term mix we want that’s much more accretive to a healthy organization regardless of the cycle.
“As an organization, we’ve never been in a better position to grow our position,” he added.
With the addition of 22 properties, the company’s portfolio grew 40% to 62 hotels in 2014, and Rahinsky said he expects the same type of growth to occur during 2015.
“It was in areas we knew we needed to be in and with brands we needed to partner with,” Rahinsky said.
Because of the deals, Hotel Equities entered eight new markets in 2014.
The joint-venture type of partnership at the local level provides the company with knowledge of the local market, according to Rahinsky.
“We understand the strategic advantage of partnering with people who may have native intelligence we don’t have,” he said.
One fund full, next is formed
Hotel Equities’ growth came thanks to a fully subscribed $35-million investment fund that turned into $187 million in transactions, Rahinsky said.
The company prefers select-service hotels in markets with high barriers to entry and multiple demand generators.
“There’s a lot of M’s and H’s in there,” said Rahinsky, referring to brands from Marriott International and Hilton Worldwide Holdings.
The company has opened another fund—this one is $70 million—that it will deploy against strong brands and strong markets, Rahinsky said.
“It also will take the portfolio up and bring in some full-service properties,” he said.
A major focus for the company is to get into more primary gateway markets, Rahinsky said.
“We’re in a lot of secondary and tertiary markets now, which provides a great foundation,” he said. “Adding gateway markets to the mix will assure a stronger future.”
The company is building a $53-million Residence Inn in Miami Beach as part of that strategy.
In addition, Hotel Equities is building a $30-million, 132-key Hampton Inn & Suites in Atlanta’s Perimeter area. The development will include retail components on four outparcels leased to national brands that will be accretive to the core Hampton project, Rahinsky said.
“That’s the comprehensive approach to deploying our capital now—not doing one-offs,” Rahinsky said. “We’re going into a position that’s a spring board into other opportunities.
“When we lease that out, it will in essence take care of debt service for the hotel,” he added.
National platform poised to handle cycles
The company owns and/or manages 24 brands in 14 states. The locations span the country, including California, New Mexico, Texas, Louisiana, Connecticut and Missouri.
“We’re a national organization,” Rahinsky said. “We’re not represented in the Pacific Northwest yet but looking at a couple of things.”
In addition, Hotel Equities is working on two projects in Costa Rica—a beachfront Residence Inn hotel and a Courtyard by Marriott property that will be part of a master plan mixed-use development, Rahinsky said.
There’s no magic number for the portfolio side, according to Rahinsky.
“The next two to three years for (Hotel Equities) will determine how we go for the next 25 years,” Rahinsky said. “This is as good as it gets, and we want to be intelligent about growth during this cycle. We turn down 10 deals for every deal we agree to. We can’t miss on any of these.”
Rahinsky projects another two-and-a-half years to four years in this cycle.
“The next downturn should not be as drastic,” he said. “We meet as an executive committee quarterly to discuss what ifs for the next downturn. We want to be prepared regardless of what’s thrown at us.”
Rahinsky said the company is positioned for the inevitable downturn—whenever it occurs—because it created an infrastructure that can weather the storm.
“We’re not over-leveraged,” he said “We’re pruning some of the weaker assets we have so that when that downturn ultimately shows up, we’re in a strong position with a strong portfolio.”
The biggest challenge for Hotel Equities is hiring employees that are a good match for the company’s culture, Rahinsky said. The company employs approximately 1,400 associates.
“It’s a unique culture—(Chairman and CEO Fred Cerrone has) been the champion of that,” Rahinsky said. “We have a coaching mentality that is a big differentiator for us. Not everyone needs another boss, but who wouldn’t want another coach?”