CEO Tyler Morse has found his niche recipe for success at MCR Development as he takes a micro investment approach by finding the best assets with ongoing, local demand generators.
REPORT FROM NEW YORK—Tyler Morse, CEO and managing partner of MCR Development, is a big believer in taking a micro investment approach to his business.
With a portfolio of 12,000 rooms across 85 hotels, he’s narrowed his focus to investing in what he finds to be the most profitable brands and assets in markets with high local demand, namely select-service brands.
Recently, Morse has been tapping into more diverse projects like the 512-room TWA Hotel positioned near Terminal 5 at John F. Kennedy International Airport in New York City.
“The highest return on invested capital are Residence Inn by Marriott and Hampton Inn by Hilton,” he said. “I think there’s around 150 brands in the hotel industry and those stand out as the highest return on invested capital by a long shot.”
Morse doesn’t target top 25 gateway city markets; instead MCR looks at markets based on supply and demand.
“We’re market-agnostic; we go to big markets and little tiny markets,” he said. For example, MCR owned two hotels in Egg Harbor Township, New Jersey, which were “spectacular investments.” Egg Harbor Township is home to one of the Federal Aviation Administration’s regional offices, which is an ongoing demand generator, he added.
“Every pilot aviator and air traffic controller in America has to go to Egg Harbor for three weeks of training … we underwrote that demand and said this is a terrific market to invest in,” he said.
MCR sold the two assets—a Residence Inn and a Homewood Suites—in June 2017 as part of an 18-property portfolio sale to American Hotel Income Properties REIT for $407.4 million.
MCR recently acquired three Hilton-branded hotels in Champaign, Illinois, near the University of Illinois campus, Morse said, which is another market driven by local demand.
“It’s a college town and there’s not a lot of new supply in Champaign, but there’s terrific demand,” he said. “The demand isn’t going anywhere, the university keeps growing.”
The university just opened a new medical school, he said, which will bring in ancillary business, research businesses, service businesses and plenty of health care professionals, creating a “nice growing demand,” he said.
To help acquire more select-service hotels, his company closed on its MCR Hospitality Fund. According to a company release, the “capital commitments total $300 million, providing MCR with approximately $1 billion in purchasing capacity.”
“We have acquired 12 hotels so far, we have four others under contract and we have a pipeline of about 10 or 15 hotels right behind that,” he said.
Another property type MCR recently delved into is airport hotels.
“We stumbled across this strategy by virtue of our TWA project,” Morse said.
MCR is working with 22 government agencies with the FAA as the lead agency for the TWA Hotel project—which MCR is redeveloping—at JFK International Airport in New York City.
“It’s given us a real expertise in airports and on-airport hotel operations … you have different demand patterns at airports,” he said. “Because we now have this highly specialized skillset at airports, we thought we’d talk to (others) and see if they’re interested. It turns out that they were.”
MCR bid in a competitive process to manage the Miami International Airport Hotel and was awarded the project, he said.
It’s certainly a niche, he added, needing a centralized body of knowledge. And while MCR’s approach isn’t to “run every kind of hotel under the sun,” Morse said it’s an option now that his team has the expertise in airport hotels.
“We’re trying to leverage that knowledge and those capabilities,” he said.
MCR also owns and manages the 187-room Courtyard by Marriott Dulles Airport Herndon in Herndon, Virginia, which the company invested $5 million in to renovate and convert from a Sheraton.
A focus on people
Another focus for Morse is his employees, and he said he sees his operating platform as the “special sauce.”
MCR has 4,000 employees running the hotels across its portfolio, he said, and it’s been a very stable platform with “a lot of really talented people who have been with us for a long time and have created a lot of value.”
He described his hiring and retention approach as a “meritocracy.”
“It’s a virtuous cycle. If you treat the guests well and the guests keep coming back, the hotel performance is better,” Morse said. “If the hotel’s performance is better, MCR makes money and then the team that generated that performance makes money. That’s what (has) created a very low turnover within MCR.”
Morse said he’s spending a lot of time on his operations team and recently rolled out a program for everyone at MCR who doesn’t work at a property level like general counsel, finance teams and the acquisitions and development team.
Each team will spend a week in Norfolk, Virginia, where MCR has a cluster of five hotels.
“They’re cleaning rooms, working behind the front desk, going on sales calls, they’re getting in deep on the operations of the hotel,” he said.
Morse added his goal is to have teams work closer together and understand each other’s roles better.
Morse’s outlook on the industry
Morse isn’t worried about new supply, and his company combats it by not operating or developing in high-supply areas.
“I think new supply is always an issue in the hotel industry; it has been for the last 50 years,” he said.
He cited Nashville, Tennessee, as an example of a tough market. With so much new supply there, it’s causing issues with airlift.
“You can’t fly enough people into the Nashville airport to fill the amount of hotel rooms that are being built there,” he said. “So we don’t target those markets.”
Overall, he sees the hotel industry as a healthy landscape. People are traveling more, especially with the emergence of ultra-low-cost carriers like Spirit Airlines, he said.
He said cheaper airlines have been great for the travel industry.
“Air travel numbers continue to go up and a lot of new aircrafts (are being added) on new routes, and those people need to stay in hotels,” he said.
In the short term, Morse said MCR will target more unique projects as well as build and acquire more select-service and independent hotels.