Over the past 25 years, Atlanta-based Hotel Equities has experienced a lot of growth. The hotel development and management company started out small with one limited-service property and now has a portfolio of 50 hotels in 11 states under 14 different brands with nearly 1,000 associates. It has five hotels under development, including one in Miami Beach and one on Costa Rica’s Pacific coast. And Brad Rahinsky, who was recently promoted to president and COO, is growing right along with the firm. He joined the team in early 2012 as vice president of operations and quickly moved into a senior leadership position. Now, as president, he is steering the firm’s rapid expansion. Rahinsky recently shared his next moves for propelling the company’s success.
What does the company currently have in its portfolio and how do you intend to grow it?
We primarily carry a lot of select-service projects like Courtyards, Hampton Inn and Suites, or Residence Inns, but also have some full service in our portfolio. Out of the 50 hotels, we have equity in about 30 percent of the portfolio. But we’re in the process of developing five hotels, and we’ll be a majority partner in those five. They are strong brands in strong markets, such as Miami Beach, where we’re building a 175-key Residence Inn. We’re also building a 132-key Hampton Inn and Suites in the Perimeter Area of Atlanta, a 124-key Residence Inn right down the street from that, and another Residence down in Lake Charles, La. Right now, we have about $125 million of capital deployed in new development projects. In the past six months, we have spent about a million dollars on our infrastructure to support that growth, and a lot of that is around our training division. We also brought on a different level of personnel at the executive level. We added two new vice presidents of operations who are seasoned veterans with extensive full service, upper upscale, luxury segment backgrounds. We also brought on a corporate director of food and beverage to support our full-service growth.
In terms of the new hires, is this gearing up the company for doing more full- service projects?
We want to diversify our portfolio, and while we’re very comfortable in the select-service space, we saw a need for owners and developers out there to get our type of management model at the full-service level. So, we went out and investigated infrastructure and human resource so we can now go to those owners and developers and present to them our operation efficiency model at a full-service level. We’re projecting by 2018, that full service will make up somewhere between 30 and 40 percent of our portfolio.
Why go so heavily into full service?
As we continue to talk to our owners and investors who are deep in the select-service space, many of them also have some full-service hotels that they have equity in or own outright, so we saw a need there. We’ve created a full-service guest experience but with a select-service efficiency model attached to that so the owner/developer gets the best of both worlds.
Is there a certain segment you’re shooting for?
When we tried to figure out who we were going to bring in on the people side, one of the things we said was, “What’s our target? We can’t be all things to everybody.” As we continued to do our own due diligence on that, there were a few senior level VPs of ops, VPs of sales and marketing, and VPs of revenue management that had comprehensive vertical distribution understanding of upper upscale luxury resorts all the way down to select service. That’s who we targeted and looked for, because we do think there’s an opportunity in all of those spaces. It really does run the gamut. We’re currently looking at a project that’s a four-star resort, and we match up very well with the folks we’re competing with there to take that down. So, all the way from four-diamond-level resort back down to select service.
Can you go into more detail about the properties in the pipeline?
There are five we have our own equity in right now, those are all Marriott or Hilton products. There are a number of other projects—we created a fund so we have some capital we need to deploy. We also have a letter of intent out there for seven hotels, all of them strong select serve, focus serve, and in some cases full serve in southeastern markets. We’re expanding our footprint geographically. We just entered into Texas for the first time, we just entered Missouri for the first time, and we’re looking at a couple of projects in Colorado and Arizona.
How efficient is it to spread out your footprint? Is it hard to manage that?
We say no at this point far more often than we say yes. We won’t do a one-off in Arizona if it doesn’t make sense from an economy scale standpoint, from an efficiency standpoint, and from our ability to move the needle of that operator. That being said, if it’s the right deal and it makes sense and it hits all the boxes that we’ve created in the criteria for us to say yes to, we’ll go to California, we’ll go international. It just depends on the deal.
How about urban markets? Any targets?
We do some consultant work in New York City, we’re currently building in Miami Beach, we’re in Charleston, and we’re about to be in Dallas, Texas. 2014 is a perfect year for us to be in a couple of the top 10 or so MSAs, so we have a laser focus right now on D.C., New York City, Austin, Chicago, Houston, Los Angeles, Phoenix, Seattle, and San Francisco. So varying degrees in the pipeline, we’re in conversations with a number of groups to look at either management or equity.
Moving forward, will you continue to put equity into deals?
We will on the deals we can show our investors and ourselves that the returns are there, so we have a very specific threshold that has to be met on any deal that we’ll put equity in, whether it’s a cash-on-cash or IRR standpoint. We went through an extensive due diligence process where we turned every stone when looking at a deal. We’d rather do one A+ deal than three B+ deals. To give you an example, with our first fund we closed, one of the projects we did was a Fairfield Inn and Suites in Charleston we bought. Within six months…we had that project turned up, ramped up, and performing so successfully, we were able to refinance at six months and put about a million-and-a-half positive equity out of the deal in less than half a year. So you get a couple investors who are on that deal, they see that kind of return in less than half a year, and their next question is, where’s the next deal? All of a sudden, raising money is not an issue. For the first time, some of these investors are hearing “no, you can’t get into this fund.” They don’t like to hear that. But it’s a good position for us to be in because it says, we’re not going to take money for the sake of taking money, we’re only going to do A+ deals.