Snapshot: DC’s Modus holds on to winners
28 OCTOBER 2015 10:41 AM
Modus Hotels in Washington, D.C., has been successful developing and holding on to boutique lifestyle properties around the nation’s capital.
WASHINGTON, D.C.—Modus Hotels has existed in its current form for roughly a decade, but its roots in Washington, D.C.-area development stretch back almost a century.
Modus officials hope to keep that momentum going by doing what they think they do best: developing and holding unique properties.
The company is owned by the Cafritz family, which has been a staple in D.C. real estate since 1919, and is chaired by Conrad Cafritz, who has invested in hotels and other commercial real estate for more than 40 years.
Modus Hotels has 11 hotels it owns and operates, largely in the Washington, D.C. area, including: The Avenue Suites; The River Inn; The Normandy Hotel; The George Washington University Inn; and One Washington Circle Hotel.
The company’s portfolio also includes a handful of properties outside D.C. While Modus owns a pair of Choice-branded hotels—a Comfort Suites in Chicago and a Quality Suites in Rockville, Maryland—the company is largely focused on boutique lifestyle properties.
“We’ve really gotten ourselves into a niche of urban, value-add development,” CEO Aaron Katz said. “That’s largely converting existing buildings and developing them into lifestyle hotels.”
Katz, who has been with Modus for eight years, said those boutique properties tend to have a high yield, which leads the company to hold properties longer than some other companies might.
“Everyone in the world is a yield chaser,” Katz said. “We’ve found that for the family, and for me personally, we get an outstanding yield buying and managing our own hotels. … That’s why we’re holders more than sellers.”
That’s what made the recent sale of one of the company’s hotels, The Quincy in Washington, D.C., so novel. The company announced in August that it would sell the 99-room boutique property to Red Lion Hotels Corporation for an undisclosed amount.
But Katz said that deal had to do with the capital behind the hotel’s development and not with a desire to get rid of the property.
The property that would become the Quincy was purchased in 2006, Katz said, and the hotel’s development was a joint venture with hedge fund RiverOak Investment Corporation.
“That fund was liquidated, and this was the last remaining asset,” Katz said. “They actually ended up holding on to it longer than planned because it was doing so well. But it was simply a matter of returning capital. So, we reluctantly became sellers. We had a great run on that hotel.”
Katz said the company’s next project will be developing a micro-unit hotel under the Pod brand, which was launched in New York City by Richard Born. Modus has broken ground on a 255-room site located near the Verizon Center, which Katz described as D.C.’s equivalent to Times Square.
“We are (the first Pod) license in D.C.,” Katz said. “We think the time is right for a value-oriented product.”
He said Pod properties offer a good balance of value and location for travelers.
“When you have an A+ location at Seventh Street and H Street, you get a lot of people coming into the city who want to look for a space where all the activity and energy is,” Katz said. “Our play on that is to offer some value for people looking to stay where the vibrancy is in the city and don’t want to spend much time in their rooms.”
He said the model should be appealing to investors as well.
“The economics are compelling,” Katz said. “You take a room, cut the size in half and charge 80% of the rate you would have. The math works really well.”
Katz thinks Modus will throw its weight behind Pod hotels in several other markets in the near future. He said the company is already in discussions with a group in Philadelphia, and executives are looking for development opportunities in major gateway cities.
Katz said the company also is looking to develop more traditional lifestyle hotels, including one at Sixth Street and K Street in Washington, D.C.