Jones Lang LaSalle Hotels last week confirmed that deal volume in the Americas hit US$11.9 billion a year ago. And the total is expected to reach US$13 billion this year.
Much of that activity is coming from the real-estate investment trust sector, where companies are racing to gobble up the best properties. For instance, Pebblebrook Hotel Trust alone has spent US$436.6 million since 9 September 2010 in acquiring a half dozen properties.
Granted, the hotel sector is in the midst of recovery right now so some pickup in hotel trades is to be expected. That said, these REITs would be well-served to study the measured approach to deal-making that Ashford Hospitality Trust has put in place.
Ashford was a silent observer of the initial transaction frenzy and hadn’t made any acquisitions since 2007. That all changed this month when the company led a joint-ventured purchase of the 28-hotel Highland Hospitality portfolio, which gave the REIT added exposure to the luxury chain scale and the East Coast market.
The Highland deal perfectly encapsulates Ashford’s modus operandi as it relates to acquisitions. First, Ashford seeks to leverage its existing position in order to gain a pricing advantage. In the Highland deal, Ashford and joint-venture partner Prudential Real Estate Investors purchased US$70 million in mezzanine debt in 2008. They followed that with another mezzanine position purchased at a “significant” discount to par, Ashford CEO Monty Bennett said during an 11 March conference call with analysts during which the deal’s closing was announced.
Second, Bennett told me during a telephone conversation this week that his company is looking for those hotels that are “off the radar” of potential competitors. Again, this plays into Ashford’s value-seeking strategy. It prevents the company from getting involved in bidding wars that could end with Ashford overspending for assets.
It’s a similar strategy Ashford might be putting to use next month if Whitehall Street Real Estate Funds isn’t able to restructure and retain the debt it owns on the Tharaldson portfolio of 105 hotels. Ashford owns a US$26-million slice of the mezzanine debt in that situation, too.
At the end of the day, Ashford’s No. 1 goal should be to create value for its shareholders. Keeping a close eye on a deal’s price tag is one way to do just that.
