NYU day two: Who is buying and selling?

NEW YORK — The optimistic conversation continued on the second full day of the New York University International Hospitality Industry Investment Conference here at the Marriott Marquis. With overall supply growth still muted, and financing and construction channels continuing to open up, hotel owners are enjoying a period of high performance.

From a financing perspective, private equity firms in Tuesday’s opening general session panel generally agree that the next few years will be good for the industry, though they’re being as opportunistic as possible when it comes to searching for deals.

But for companies that invest beyond hospitality, hotels still are a good bet. For Suril Shah, SVP of Starwood Capital Group, it’s always about the specific buy, not just the asset class. “We’re constantly churning our portfolio,” he said. “We go where the opportunities are.” For Starwood Capital, a lot of that opportunity is international.


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Glenn Alba, managing director in Blackstone’s real estate group, agreed that international investments are hot right now. In March the company closed its fourth European real estate fund at its cap of around $7 billion USD.

Here at home, though, deals are happening as conversions and new-builds. Shah said Starwood Capital is seeing new-construction deals take off. “We’re building four hotels in New York right now,” he said, along with the transformation of the former Gansevoort Hotel in Miami into a 1 Hotel & Homes, plus other selective deals.

Cia Buckley, CIO of Dune Real Estate Partners, which invests one third of its portfolio in hospitality, said it’s a good time for her company, since its strategy is “to own unique assets that stand the test of time, but to get to them in a creative way.”

She cited the company’s financing of the Four Seasons Resort Orlando at Walt Disney World Resort, which opens this August as the only fee-owned land Disney sold to a non-Disney company as one such deal. She too believes new development is one way of getting deals done. She cited the company’s development of The Standard, High Line NYC as one such project. “We don’t develop for development’s sake, or believe that new development automatically creates a good transaction, but being on the lookout for good assets can include new development,” she said.

That’s not the strategy for Merrick Kleeman, managing partner of Wheelock Street Capital. “New development doesn’t make sense early in the cycle,” he said. “It’s risky late in the cycle because then you have a three-year development window with no cashflow or exit flexibility. We think the ability to choose exits is one of the biggest tools we have in the industry.”

Wheelock Street Capital is currently involved in buying and selling, Kleeman said. What really matters, he said, is where we are in the cycle. “Select-service is great because it’s high cash flow with less volatility, and they’re nice to own later in the cycle. But they’re susceptible to new supply. Full service has better flow-through and better operating leverage, but if something happens, like a demand shocker, you fall a lot faster.”

The moral of that story, he said, is to pay attention to supply. “The only thing we can do in this business is pay attention to supply. It’s what kills cycles.”

Riffing on that theme, Noble Investment Group CEO Mit Shah agreed that paying attention to market is key. “We here on this panel represent how many different ways you can play this sector,” he said. “We all stick to what we know and what we can execute. If you focus on markets with a latent demand stream, like universities and state capitals, you won’t get high peaks but you won’t get low valleys.”

What’s important, he said, was knowing where and how to create yield. “If you can create yield that will be stable over time, that’s good,” he said. “We’re focused on that.”