MCR launches $300m hotel fund – Exclusive

The New York-based firm, which has invested on a deal-by-deal basis for a decade, is now raising its first commingled fund.

MCR Development, a New York-based hotel owner and operator, is not looking close to home for opportunities with its debut fund.

The firm launched its maiden vehicle, MCR Hospitality Fund, this month, founder Tyler Morse told PERE. MCR seeks to raise $300 million for the opportunistic fund with no hard cap and is targeting an 18 percent to 20 percent gross internal rate of return.

With the vehicle, the vertically-integrated firm plans to continue buying hotels in secondary and tertiary markets, which Morse calls undersupplied. MCR, founded in 2006, currently owns 90 hotels and has invested about $700 million in equity over the past decade.

“When you do the math, almost a full 50 percent of the new supply in the US is Manhattan, Miami, Nashville and Austin,” Morse, also the firm’s chief executive, said. “What that means is everywhere else is undersupplied.”

Morse expected the investor base for MCR Hospitality Fund to comprise both returning and new investors, with a mix of foundations, endowments, pension funds and high-net-worth individuals. Previously, the firm has worked on a deal-by-deal basis, but is pursuing a commingled structure to diversify investors’ risk and to streamline investments. The firm manages $2 billion, according to a spokesman.

“We chose a commingled fund for logistics and flexibility, because sometimes the best opportunities are to buy single assets,” Morse said. “We may buy a single hotel for $12 million to $15 million. It’s a lot of administration and logistics to build the capital stack for a $10 million acquisition.”

Hospitality appeals to investors looking for high-yield investments, Morse said. The property type is also known for high volatility, which the firm tries to mitigate through low leverage and focusing on Hilton and Marriott hotels, which receive the majority of bookings from central reservation systems.

MCR’s most recent publicly-available transaction was the September sale of Woodspring Suites Kalamazoo, a 121-unit property in Michigan, for an undisclosed price, according to data provider Real Capital Analytics.