Trinity’s debut US hotel fund surpasses $500m

Investors are eager to find ways to tap into the post-pandemic resurgence of hospitality in the US.

Trinity Real Estate Investments capitalized on this demand by closing its inaugural commingled vehicle, Trinity GP Fund I, on $520 million, PERE has learned, surpassing its $315 million target.

Launched in September, the oversubscribed vehicle will pursue value-add investments in high-end destination hotels throughout the country.

The travel economy has borne the brunt of disruption by covid-19. The share of lodging  commercial mortgage-backed securities that are in special servicing has been more than 24 percent since July 2020, according to the research firm Trepp. Similarly, hotels in the NCREIF Property Index registered a one-year return of -24 percent through the first quarter of this year.

Yet, distressed deals have been rare. Just 8 percent of hotel sales involved a distressed asset between March 2020 and February 2021, according to the transactions house Real Capital Analytics. Sean Hehir, managing partner and chief executive of Trinity said, deep discounts are still few and far between, but that has not impacted his fund’s strategy thus far.

“When you’re targeting properties that have a value-add component, a repositioning component, that should work at any point in the market cycle,” Hehir said. “So, while we’re not seeing the distress that we expected to, the returns that we’re underwriting to are consistent with what our expectations were.”

Trinity made its first acquisition through the fund last week, purchasing a loan note for an asset in the southeastern US. Hehir said roughly 40 percent of the fund will consist of debt positions, with the rest slated to be equity acquisitions. The firm will focus on branded hotels.

Hehir said more than $300 million of the fund’s capital was raised from high-net-worth individuals through Citibank’s global private banking platform. The remainder came from institutional investors, including sovereign wealth funds, family offices and fund-of-fund managers.

Hehir credits the debut fund’s ability to attract capital to Trinity’s track record of success. “We don’t rely on cap rate compression or financial engineering or distress to generate our returns,” he said. “When we were marketing this during covid last year, we said the perceived distress out there is a bonus, but it’s not what we’re relying on entirely.”

Founded in 1996, the Honolulu-based firm has largely capitalized its US acquisitions one at a time, Hehir said, partnering with groups such as Oaktree Capital Management, Ares Management and Walton Street Capital. Trinity has also raised third-party capital for a series of vehicles targeting Asia, but Hehir said each of those was structured as a fund-of-one with either Kuwait’s Public Institutions for Social Security or the country’s sovereign wealth investor Wafra.

Hehir said he hopes to remain the operating partner of choice for larger institutional money managers. The firm is also exploring expansions into Europe and Asia. “Our main focus right now is deploying this fund,” he said. “But we are exploring other geographies.”