Pacifica Hotels CEO Matt Marquis said the family-owned boutique hotel management company is finding opportunities in third-party management contracts and conversions.
ALISO VEJO, California—The portfolio of Pacifica Hotels is showing resilience despite headwinds, CEO Matt Marquis said. The family-owned boutique hotel management firm’s parent company, Invest West Financial Corporation, celebrated its 50th anniversary in 2020, a year that has brought unprecedented challenges for the company and industry.
Marquis said hotel industry leaders have discussed the possibility of a recession for years, and many felt like they were in the 11th inning during the last upswing.
“I think we’ve gotten a correction, not a recession,” he said. “It will be interesting to see how quickly it comes back—some of that will be politics, some of that will be vaccine and some of it will just be economics.”
Marquis said most of the hotels in Pacifica’s portfolio have been performing well due to their drive-to locations and coming off a strong summer leisure season.
Hitting the highlights, he said, “our Central Coast (properties) did really well during the summer … that Pismo Beach, Cambria area along the coast … during July, August, September, October. It’s still doing decently, it’s just cooled off with the panic out there,” he said.
When the company opened the rooftop bar of its Wayfarer in Downtown Los Angeles, he said that brought in “$30,000 to $40,000 week, which gave us some cash.” But with additional COVID-19 restrictions in California, he said that has now been shut down.
Overall, the entire portfolio “has been really resilient,” he said, adding that the company is sitting “with good cash balances for the most part on a lot of our assets.”
Some assets are doing almost as well as they did in 2019, he said.
Deals, streamlined focus
Pacifica sold its 31-key Wayfarer prototype in Santa Barbara in October, Marquis said. When it hit the market, he said his company “got quite a bit more than we thought. For us, that was a win” to get a return for its investors.
Part of the decision to sell stemmed from Pacifica looking to move away from smaller assets, he said. Following that, Pacifica picked up three assets within half a mile of the Wayfarer Santa Barbara. The company is also in the process of selling a couple of its development deals.
“Getting rid of that (Wayfarer Santa Barbara) asset allowed us to be in a better position to get those third-party management assets,” he said, adding there’s a lot of opportunity in third-party management contracts.
There are a lot of smaller management companies that are saying “I can’t do it. I can’t make it … if I’m only getting 20% of (a property’s) revenue,” he said.
Pacifica has also made headway in conversions, including converting a Best Western property the company purchased in Aptos into a Tapestry, he said.
“We’ve actually signed four deals with Hilton to convert four of our assets to Tapestry,” which will give Pacifica a competitive edge, he said.
Choice Hotels International’s Cambria is among the other brands Pacifica is looking at, he said. First and foremost, however, it’s about the type of location and the market it’s in.
“That being said … if it’s an independent or a branded asset, we don’t care one way or another because we know how to run both,” he said.
Future of lending
Marquis said in most cases, almost every hotel in the industry is under some sort of distress right now, which creates opportunities.
The challenge, though, is that there’s almost no liquidity out there.
While Pacifica has a fair amount of equity on the sidelines because of family offices and big equity partners, Marquis said the financial market is difficult and there are a lot of expensive debt funds.
“CMBS seems to be out of favor now,” he said. “It’s going to be interesting to see who steps up … regional banks, national banks to fill that void for CMBS. And then also, who’s going to lend in the future?”
It’s been interesting to see the evolution of how different companies have responded to the pandemic, Marquis said.
“One of the beauties I’ve seen throughout all this is the collaboration between what we would usually call competitors,” he said, such as hearing on calls how each company is navigating the safety of guests and staff and how they’re communicating with lenders.
The long-term plan for Pacifica is ensuring each property is stabilized as well as the company, which includes bringing more staff back, Marquis said. In terms of getting through the next year, he’s hopeful for another strong spring and summer season.
Foreign travel would typically account for 30% to 60% of leisure travel in California, especially during the summer months, but he anticipates international travel won’t pick back up until there’s more progress with vaccines.
Additionally, he plans to continue adding more third-party management contracts as well as acquire more assets along the coast of California and grow Pacifica's two brands, The Kinney and The Wayfarer.
“There should be a lot of opportunity to add to that over the next two or three years,” he said.