Interstate's Leslie Ng on expansion and the unexpected

Interstate's Leslie Ng

Leslie Ng entered the hospitality industry in the 1980s with the purchase of the Stanhope Hotel in New York City. The property, constructed in 1926 on Manhattan’s Fifth Avenue, had fallen into bankruptcy when Tobishima Associates picked it up at an auction in 1989. Ng was serving as VP of the company, which used the acquisition to fill out its portfolio in the U.S. “I was working with one of the high-flying Japanese companies that were buying up American real estate, and out of the blue we bought the Stanhope,” Ng said. “I paid $76 million, all cash, on a leasehold for the hotel, and that was my entry into the business.” 

From that moment on Ng was involved in the world of hotel investment. In 1997, he was a member of Patriot American Hospitality when it purchased the Interstate Hotels Company for $1.34 billion, and he was also involved in the company’s reinvention one year later. Due to this relationship with the brand, Interstate’s chairman and CEO at the time, Thomas Hewitt, asked Ng to rejoin the organization in 2005 as chief investment officer. Ng accepted the invitation, sharing Interstate’s renewed interest in hotel investment. 

Interstate proved to be the perfect playground for Ng, who found it rewarding to pursue transactions that others believed couldn’t be done. “I’m a deal junkie at heart,” Ng said. “I love chasing deals, and I love putting them together. The more complex, the better.” 

Acting as both a hotel management and hotel ownership company, Interstate is essentially two businesses under one roof. The primary hotels targeted by the company for management are upscale, full-service and premium select-service properties. Currently, Interstate owns 47 hotels, five of which are wholly owned and a further 42 are owned with partners. Additionally, the company’s management portfolio consists of 76,000 rooms in 430 hotels.

Today, Ng is busy working to expand Interstate’s international hotel platform. The company is looking to Europe and the United Kingdom as major areas for expansion. As the largest operator of independent hotels the world over, Interstate wants to formalize its vast portfolio and use it as a springboard to launch a hotel operating platform. The strategy involves a major shift in the company to a more global outlook, something that has presented both new challenges and experiences for Ng. Mainly, there is a sharp divide in the types of hotel owners working with Interstate in the U.S. and abroad. 

“Hotel ownership, with our base group in the U.S., is largely in the hands of sophisticated institutional owners with multiple units,” Ng said. “Internationally, we have many more one-off owners. It’s a more fragmented system.” 

But it remains a system that Ng sees as vital to the future expansion of Interstate. Last April, Interstate signed a management agreement for an 18-property portfolio in the U.K., pulling 2,443 guestrooms under its umbrella. “We see tremendous growth in Europe, the U.K. and the rest of the continent,” Ng said. “We have doubled the size of the company in
five years, and there is more to be done.” 

Aside from specific international targets, Interstate has two primary vehicles for investment. The company seeks to acquire wholly owned operating companies or hotels, something it has done in two major transactions during the past year and five previously from 2006-2008. On the ownership side, Interstate invests silver equity alongside capital partners, where the company takes roughly 5 percent to 10 percent of the capital stack.

When asked what Ng will working at Interstate in the near future, he said he isn’t sure. That’s the draw for him; he thrives on the position’s unpredictability and the way he finds himself on a plane at the 11th hour to seal a deal when least expected.

“Not knowing what I’m doing tomorrow, or where, is my favorite part of the job,” Ng said. “And it should be; it’s been most of my career.”

Looking back on why Ng accepted Hewitt’s proposal to come to Interstate in the mid-2000s, Ng said the company’s tool chest give him the resources to pursue investment opportunities he wouldn’t have had access to otherwise. But more important than the availability of capital to facilitate the transaction process was access to Interstate’s pool of employees. 

Considering his 10-year tenure with Interstate, Ng said he is most proud of his business development team. “The team we put together there over the past two years is the best team we’ve had in our 50-plus-year history,” Ng said. “It’s important that I work with a seasoned and professional team.” 

That team has assisted Ng and his partners in dealing with investment challenges, but Ng has called the advancement of technology the greatest test facing the industry. “We can analyze and transact on deals much more quickly than in the past,” Ng said. While this may seem to be a blessing, the development and adoption of technology, not to mention training for its use, has turned every facet of the industry into an arms race, making investment even more time sensitive. “Technology has allowed our side of the business to move much more quickly.”

Aside from the rising tide of advanced technology, other shakeups could be in store for Interstate. The company is a wholly owned subsidiary of a joint venture between subsidiaries of Thayer Lodging and Shanghai’s Jin Jiang International Hotels Group. In the middle of 2015, rumors began to circulate that Jin Jiang and Thayer were mulling the possible of sale of Interstate. While Jin Jiang and Thayer acquired the hotel company in early 2010 for roughly $307 million, if sold again Interstate is expected to go for more than $600 million.

When asked for his take on Interstate’s potential sale, Ng instead opted to stay in the present. He’s in the business of buying for Interstate, and has his eyes on future acquisition as opposed to future sales. “We don’t really discuss what may or may not happen in the future [for Interstate],” Ng said. “On the acquisition side, though, we are always on the lookout for future additions to our company.” 

Besides, Ng has more on his mind at the moment. While industry fundamentals remain impressively strong, the end of the cycle looms large. Ng called the act of anticipating or predicting the end of the cycle one of the greatest challenges facing him and his contemporaries, especially with the knowledge of how difficult the end of the previous cycle was for the industry.

“No one can ever anticipate it perfectly; there is a lot of guessing,” Ng said. “But if you can err on the right side of the guessing, 80 percent of the time you are going to come out OK.” 

Having been through three cycles so far, Ng is bullish on the future of Interstate as a player in the U.S. and abroad going into this year. While changes to the industry often bring their fair share of challenges, Ng said that he is pulling for the industry to continue innovating in two major areas, since he spends so much time in hotels. 

“I hope the beds get more comfortable, and the TVs get better and bigger!”