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Checking in on hotels

Two firms led by former Blackstone Real Estate Advisors and Related Companies executives have formed AWH Partners, a new venture that is targeting investments in the hotel real estate sector, where transaction activity has been heating up.

While other investors are chasing multifamily or industrial assets, AWH Partners is placing its bets on hotels.  According to a recent research report from Jones Lang LaSalle Hotels, real estate investment activity in the Americas surged to a four-year high of $15.9 billion in 2011, and activity this year is expected to at least match that volume.

AWH Partners is a joint venture between two private New York-based real estate investment firms – Winston Harton Holdings, which is led by former Blackstone Real Estate Advisors executives Russell Flicker and Jonathan Rosenfeld and focuses on distressed and value-added real estate investments, and August Group Ventures, which is headed by Related Companies veteran Chad Cooley and invests in and manages hotel assets requiring capital infusions and/or repositioning. PERE spoke with Flicker on the partnership’s first two deals and its plans to build a portfolio through joint ventures with investors.

PERE: What brought you together to form this partnership?
Flicker: We chased a number of transactions and bid on some things together. The first deal we closed together was the Lane Hotels deal. We bought the management company, and the seller [Lane Industries] also owns nine hotels, which we have the option to buy over time.

We teamed up with an institutional investor, which is not only a partner in our acquisition of the management company but also a partner in acquiring the Lane assets and potentially many other assets. In fact, after the Lane Hotels management acquisition, the first transaction we completed was buying the note on the Jackson Hilton [in Jackson, Mississippi], which is one of those Lane assets. We’ve got a clear path to title and, over the next 60 days, we’ll take over the equity of the Jackson Hilton.

PERE: Why did you decide to acquire Lane Hotels?
Flicker: Through the management company, we’ll see a number of transactions that we wouldn’t otherwise see. [Lane] hotel managers are out in the market constantly seeing new deals, as they have history with several owners and have been both sellers and buyers throughout the years. As a result, we now have a team of hotel experts to help us underwrite and evaluate transactions pretty quickly.

PERE: What are your plans for acquiring the other eight hotels?
Flicker: Each of these hotels has a different lender and a different hotel flag, so we need to go through an evaluation process for each one. We’ll be going through that over the next 12 to 18 months on all of those assets, with the Jackson Hilton being the first. In that one, we’re acquiring the note. In others, we could assume a mortgage or we could refinance.

PERE: Do you have other deals in the pipeline?
Flicker: We’re fortunate to have a pretty strong pipeline of about $300 million. The positive thing right now for the hotel industry is, if you’re a buyer, there are a number of markets that have not really seen the pickup in revenue per available room (RevPAR) yet. We think there’s some growth opportunity there.

In addition, many of these assets haven’t received the capital they’ve needed for the last three to five years. In some cases, particularly where owners are in trouble financially, these assets may have not had the human capital – the care and attention and asset management they’ve needed. So, we’ve got a pretty solid pipeline of other transactions that could fit well into the Lane business. In some cases, we’ll change flags or do significant renovations, and sometimes it’s an operational repositioning or the ability to add value on the ground. As a result, we think we’ll be pretty active over the coming months.

PERE: What’s your investment strategy?
Flicker: Right now, we’re spending a lot of time in the hospitality sector because there’s this great opportunity for value-added investments. Many of the markets have not seen a real uptick in growth, and there’s this huge opportunity to add value. I think that is particularly true in hotels, and we think we’re in the right part of the cycle to be buying hotels. However, we do look at other property types, and all the principals have been involved in all of the different property types. It’s just a question of finding the right opportunity.