After spending 10 years chasing multi-property portfolios, MCR Development is switching its acquisition strategy to look for smaller deals, according to executive Russ Shattan.
ATLANTA—A shift in acquisition strategy is one of the hallmarks of MCR Development’s 10th anniversary celebration.
While primarily focusing on acquiring portfolios of hotels since its inception in 2006, the company is now setting its sights on smaller deals as it tries to churn its 88-property portfolio, according to Russ Shattan, MCR’s senior VP of acquisitions & development.
“What we’re going to do is shift into smaller deals,” Shattan said during a break at the 28th annual Hunter Hotel Conference. “One- and two-packs are tougher deals to find, so we’re out to meet those guys.”
Russ Shattan, MCR Development
Because those owners tend to be developers who know their markets well, the opportunity to acquire quality assets in prime locations is a major reason MCR is looking local.
“Those local guys build in better locations versus national developers who might overpay or pick a site that’s not where the city is moving to,” Shattan said.
That’s important to MCR because it is looking for what Shattan called “premium-branded hotels in visible locations” to enhance its 10,000-plus room inventory valued at $2 billion and located in 23 states.
“We like secondary markets … suburbs where there’s a good office park, military base, regional hospitals, airport or manufacturing facility,” he said, citing markets such as Bozeman, Montana; Yuma, Arizona; Jacksonville, Florida; and Lexington, Kentucky.
- Click here to read full coverage of the 2016 Hunter Hotel Conference.
After doing 18 deals in 2016, the company plans to do 15 to 20 more in 2016, Shattan said. However, it will also sell about the same number of hotels because they’ve reached the company’s targeted three-t-five-year hold period. Proceeds from any sales will be plowed into buying new properties, he said.
MCR has a fondness for extended-stay hotels—its portfolio includes 44 of them, including 16 Residence Inn properties, 13 TownePlace Suites hotels and nine Homewood Suites hotels.
“It’s a better mousetrap—we love the extended-stay model,” Shattan said, citing not having to have full housekeeping for every room, a robust Sunday night business flow and the need for fewer front-desk personnel because check-ins and check-outs are less frequent.
Other brands in on its roster include: Courtyard by Marriott; Fairfield Inn & Suites; Hampton Inn & Suites; Hilton Garden Inn; SpringHill Suites; and Value Place.
Efficient business model is the draw
The common denominator is the efficiency of the select-service business model, according to Shattan.
“Limited service isn’t about experimentation; it’s about execution and recognition,” he said.
That winds its way throughout a hotel—all the way down to the free breakfast most hotels in MCR’s portfolio offer.
“It’s far easier for us to give away breakfast than to charge for it,” Shattan said. “It costs us 350 bucks a day to give away breakfast—half of it in labor and half of it in food. It makes the process so much smoother.”
Having that type of portfolio has been good for the company. MCR’s revenue per available room grew 8% in January and 7.5% in February, Shattan said.
Some of that success can be attributed to the type of assets it is seeking to buy, he added.
“The industry has gotten so RevPAR dollar-focused,” Shattan said. “We have a high degree of comfort in buying assets in the $70 to $90 RevPAR range.
“Institutional capital came into market … there was a Wall Street-driven preference for higher RevPAR properties and that leaves companies like us with quality hotels to target.”
Shattan said smaller markets with that type of assets on the trading block remain strong on the average daily rate growth front, despite what might being going on in gateway cities and affecting the impression of the industry.
“I see (positive performance) going definitely through ’17,” Shattan said. “There’s no reason to believe ’17 will be a problem year either. Booking pace is strong, and we had a very strong RFP season this year.”