8 Habits of Effective Hotel Investors

Major urban markets present plenty of positive trends, but there has also been an increase in demand for secondary markets and for new and innovative concepts from younger, experience-focused travelers like millennials. There has been a spike in tourism since legislation loosened up and made it easier for global travelers to visit the United States. While international visitors are naturally attracted to familiar American cities like New York and Los Angeles, investors have also monitored the domestic movement of businesses and populations from suburbs back into cities.

Prosperous and successful hotel investors have expanded their businesses by investigating products and markets where it may be difficult to get a foothold. “We focused on cities where it’s difficult to build,” Bortz says. “There’s a lot of competition for land from other uses, so when you own there, it’s great.” Case in point, 13 of the REIT’s hotels are located in California cities like San Diego, Los Angeles, and San Francisco, where building permits are even more difficult to come by than unoccupied commercial space. “When you are trying to be a developer of a new product there, it’s a really tough place to be successful.”

Pebblebrook has long maintained a relationship with Kimpton Hotels & Restaurants and currently has 10 Kimpton properties in its portfolio. In December, InterContinental Hotels Group purchased Kimpton for $430 million. The takeover comes at a time when boutique hotels represent the fastest growing segment in the hotel industry, which is why Bortz says he hopes IHG retains Kimpton’s identity under the larger ownership group. He sees it as a special hotel collection that attracts unique customers with typically smaller properties that are focused on the style and local culture found in cities.

“In a city, it’s much easier for us to create a unique product and have it be successful because folks are already gearing up to come to those cities, and our efforts aren’t about trying to attract them to Boston or New York or San Francisco or L.A.,” says Bortz. “It’s also about selecting us from the multitude of choices if they decide to come to those markets,” he adds.

That philosophy feeds the idea that location is as important as ever in hotel investing. So while some hotel developers may be forward-thinking visionaries that are finding success by staying true to a strict set of investment strategies, location will always be the oxygen of the industry.

“If you have a slam dunk location, you are going to perform well no matter what,” says Vesta’s Takach. His company has 10 properties—mostly in the Pacific Northwest—and is currently more focused on acquisition than redevelopment. Citing a competitive market in which many other investors are sizing up similar properties, Takach puts a premium on pounding pavement and cultivating personal relationships. “The idea is that there’s a hotel that’s doing well, so let’s go buy it,” he says. “It doesn’t always work that way.”

Gathering and Using Data
Vesta Hospitality tends to look outside of ultra-competitive primary markets for new acquisitions, putting in the work to identify pockets of growth in cities like Glendale, Ariz., and Savannah, Ga. “We make investments where we think we can make money,” Takach says of Vesta’s opportunistic strategy. Based in Vancouver, Wash., the firm offers services that include day-to-day operations of properties, from accounting to staff recruitment and training.

Beyond focusing on basic investment principles, such as the importance of a property’s location and the metrics of a market’s performance, Vesta likes to find off-market properties, which tend to require less resources and time to acquire. One such acquisition, a Holiday Inn in Lincoln, Neb., that Vesta acquired for $15 million in 2008 and then renovated for $8 million, recently paid off for the firm when AJ Capital Partners bought it in January. The Chicago-based real estate investment company paid just over $25 million for the 16-story 231-room hotel and announced plans to convert it to a Graduate Hotel, its boutique collection targeting college markets. Vesta will stay on to manage the property, which sits just a few blocks from the University of Nebraska campus.

Identifying these opportunities requires more in-depth research than just looking at numbers found in a market study. There is more information available today than ever before, and it’s all at the fingertips of legions of like-minded investors. Takach looks for assets where he can create additional value, placing a great emphasis on room size. He also measures advanced bookings and existing performance when evaluating new opportunities. Keeping with its corporate identity, Vesta looks well past the numbers, too. “It’s having the right people on the field,” he says. “I love football, and I think their model plays into what we do: You have the right team of people; you motivate them and give them the tools to do their job.”

Despite the oversaturation of data—from demand generators to comp set—Vesta tries to drill deeper and makes going into the market and cultivating personal relationships a vital piece of the process. “This is because deal-altering information, such as a specific front desk location that will impact a costly renovation project, may not appear on a spreadsheet.” Takach says he meets with as many people on the ground as possible to collect those small but critical details, like a troublesome parking ramp at one prospective property that freezes over so fast in the winter that workers are unable to keep up with de-icing.

And just as the larger Pebblebrook has found success outside the box, Vesta also ventures where some investors never do to find fantastic opportunities. “Every hotel has something that doesn’t work right,” Takach says. “We try to gain a full understanding of the property and the market before pulling the trigger on anything. Just reading a market study is not enough.”

After all, food trucks and graffiti murals are typically not found in those reports.