Scottsdale, Ariz.-based Virtua Partners is a global private equity firm specializing in commercial real estate. The company sponsors a variety of investment funds and commercial real estate projects across the United States. With experience across multiple disciplines—including restructuring, property development, structured finance, debt and equity origination, asset and property management and fund management—the firm provides risk-adjusted returns for high-net-worth individuals and family offices.
Through its partnership with Hotel Equities, Virtua focuses on opportunities with hotel companies such as Marriott International, Hilton, IHG, Hyatt Hotels Corp. and Hard Rock International.
Quinn Palomino, CEO and co-founder of Virtua Partners, recently connected with Hotel Management to talk about the firm’s opportunities, growth strategies and overcoming challenges in the year ahead.
1. Opportunity zones are part of your strategy. Can you tell us how you are using opportunity zones when it comes to investing in U.S. hotels? What benefit do you find here? Any challenges?
We view opportunity zones as additional criteria that can potentially make an investment more attractive. One of the key benefits of opportunity zones is that eligible capital gains invested in a qualified opportunity zone fund allows investors to potentially defer, reduce and eliminate those capital gains over 10 years, as well as earn a potentially attractive return.
We know that markets historically move in cycles, and at some point in the next 10 years, we may likely have an economic downturn. In our view, any investment strategy that involves hotels in opportunity zones should include a veteran hotel operator like Hotel Equities, who has a 30-year track record of success through multiple economic cycles.
Ultimately, though, our goal is to produce positive risk-adjusted returns for our partners. To that end, we won’t deviate from our investment criteria just because land or property is in an opportunity zone. We still need reliable consumer demand drivers in a growing metro area to be considered for investment.
Related Story: Opportunity zones: complex rules, major benefits
2. At this point in the cycle, what is your firm looking at in terms of U.S. hotel investment?
Considering the current low interest rate environment, we feel select-service hotels can offer investors an attractive alternative to bonds by producing current income with the potential for future appreciation.
We are focused on select-service brands from premium chains like Marriott, Hilton, IHG, Hyatt and Hard Rock. In our view, select-
service hotels represent limited operating and development risk relative to luxury, full-service or economy hotels.
We prefer projects in Sun Belt states for a few reasons. The milder weather helps mitigate weather-related delays in our development process. Demographic trends have shown an increase in jobs in the Sun Belt, which spurs added density, more development, which creates conditions favorable for more business and leisure travel.
3. Do you think a downturn is on the close horizon?
Our job isn’t to predict the future; our job is to focus on fundamentals and have sound strategies in place to help withstand an economic downturn. We believe our investment strategy is cycle-adaptive, which means we try to prudently deploy leverage, minimize our reliance on third parties in development projects and stick to our investment criteria.
Related Story: Does the current U.S. hotel cycle have room to grow?
4. What is your biggest opportunity heading into the new year?
We expect 2020 to be punctuated by growth in three areas: new development, third-party management and asset acquisition.
Thanks to Hotel Equities and its growth into new markets, our new development pipeline is robust. Our key brand relationships grant us access to expansion opportunities for these brands, as well as off-market deals for repositioning. We can provide added benefits to an owner because of Virtua’s access to debt and equity funding and Hotel Equities’ track record of management success.
Finally, we love mismanaged and underserved hotels because we know that we can add value once we acquire the asset or portfolio of assets. Our partnership with Hotel Equities, plus Virtua’s ability to structure capital, means we feel we’re well-positioned to reposition or reflag a struggling hotel.
5. How about your biggest challenge, and how will you overcome it?
Managing growth can be a challenge. Sometimes, a rapid growth trajectory can result in taking shortcuts, overspending or deviating from what got you there in the first place. Our challenge is to manage growth efficiently and keep our focus on process management. We know growth isn’t ever a straight line, but to stay on trajectory, we need to make sure the organization continues to operate efficiently and with discipline. If we stick to the discipline that positioned us to grow, we’ll continue to be successful.