After eleven years at Starwood Capital Group, Kevin Colket is testing entrepreneurial waters with the launch of a hospitality-focused private equity firm.

Colket, who was most recently the Greenwich-Connecticut-based investment firm’s managing director and head of Asia-Pacific acquisitions before leaving in September, set up Global Hospitality Investment Group last month. GHIG is headquartered in Hong Kong, where Colket will be based, but he is also planning to open for business in New York and London.

GHIG has been set up as a ‘pure-play’ hospitality firm to raise and deploy institutional capital via equity and debt investments in select markets across the US, Europe and Asia-Pacific. The firm’s investment focus will go beyond hotels to also include other hospitality segments, namely co-living, serviced apartments, corporate housing and student housing. GHIG currently has a team of three people, which Colket says he wants to increase to 8-10 people by the fourth quarter of this year.

Speaking to PERE exclusively about his new venture, Colket said he aims to invest $1 billion in total equity over the next five years through different investment vehicles, including co-investment partnerships with institutional investors, a form of investing which has become more popular. He is targeting equity check sizes of $50 million to $300 million in single asset deals, portfolio acquisitions as well as selective investments in operating and management companies. According to him, his firm is currently negotiating the first round of deals, involving an investment in a new development lifestyle hotel in Sydney and a co-living platform in San Francisco.

Colket’s plans for his venture will unfold at a time when global hotel investment volumes are following a steady growth momentum path. According to JLL’s Hotel Investment Outlook Report for 2019, global hotel transaction volumes totalled around $68 billion, up from the $66.4 billion in 2017. JLL expects similar volumes in 2019 for various reasons, including the relatively better yield profile of hotel investments versus other sectors as well as pressure to invest what it record dry powder raised for acquisitions. Investors are also beginning to approach hotel investments in ways beyond the traditional direct investment model, the report notes, and this year is expected to see more debt investments, joint ventures, recapitalizations and real estate and brand M&A.

Colket also believes hospitality to have the “strongest short-and long-term demand growth drivers” of an asset class currently, with all the surge in international travel.

“Compared to retail, which is being disrupted by internet sales, and office, which is being disrupted by the co-working space that work with shorter-term leases, hotel demand and occupancies have continued to grow at significant numbers. Over the next 5-10 years, I believe hospitality will offer much more attractive return prospects, especially as AI and machine learning further remove whatever alpha still exists today in more core real estate asset classes,” he explained, although he did not disclose specific return targets.

Notwithstanding the demand drivers, a hospitality-focused firm will still need to overcome barriers while raising institutional capital – not least proving the concept in the first place. Colket says he is aware of the challenges that come with being a first-time manager but believes he can leverage the “significant unmet need for a pure play hospitality investment firm” globally.

“There are a few large global real estate private equity firms who are exceptional at hospitality operations and branding, but it is less than a handful of firms, in my opinion, and these firms generally commingle many real estate asset classes together in closed-end funds.”

JLL and PERE’s own data affirms this view, at least with respect to hotel investments. In the past five years, approximately 70 percent of global hotel investments were made by generalist investors that invest in multiple asset classes as opposed to hotel investors per se, according to JLL. And the data for hotel-focused funds has not been promising either. As per PERE data, hospitality-focused funds have significantly reduced in number over the years. In 2016, 13 hospitality funds attracted $4.6 billion in total capital globally, while 2017 saw 15 funds attract a much lower $1.7 billion in total capital. In 2018, however, only 2 funds were closed.