HEI targets North America and Caribbean with third fund

The hospitality-focused private equity real estate fund, which closed its HEI Hospitality Fund III last year on $515m, insists the sector will continue to reprice through 2009. Having dry powder will be key to securing the best investments.

HEI Hotels is preparing to deploy more than $500 million in dry powder from its third private equity fund, HEI Hospitality Fund III.

Closed in July last year, the fund will target full service, upper upscale and luxury hotels in the US, Canada and Caribbean. According to HEI, with leverage the fund could acquire between $1.5 billion and $2 billion of assets.

Steve Mendell, HEI executive vice president of acquisitions and development, said for the first time in 16 months valuations in the hospitality sector was “com[ing] in line with market expectations as the expectation gap narrows between buyers and sellers”.

It was a trend Mendell expected to continue through 2009, adding: “Cash always is king in this part of the real estate cycle.”

HEI closed Fund III on $515 million in July last year. Its second fund closed on $425 million in 2006, with commitments from nine university endowments. HEI's debut fund closed on $274.3 million in 2004. To date, Fund I has invested in 12 hotels, including New York City’s Algonquin Hotel, on West 44th Street.

In 2002, HEI formed a joint venture with Prudential Real Estate Investors