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Liberty Group looks beyond distressed assets
April 1 2013

Following several years of acquiring distressed hotel assets, Florida-based Liberty Group is pursuing new development, starting with an Aloft in downtown Tampa.

  • In the past three years, the company purchased 22 hotels, many of them distressed assets.
  • Liberty broke ground recently on a 130-room Aloft Hotel in downtown Tampa.
  • A new investment fund will focus on acquisitions of select-service properties.
By Ed Watkins
HNN contributor

Punit Shah, president and COO at Liberty Group, discusses the company's growth strategies amid some upcoming challenges.

ATLANTA—Punit Shah is an entrepreneur with a legacy to protect and a clear-cut vision for his future. Shah is president and COO of Liberty Group, a Clearwater, Florida-based owner-operator with a portfolio of approximately 25 hotels, many of which were distressed properties the firm acquired during the economic downturn.

“Conventionally and for 30 years we were a ground-up developer only, but in 2009 and ’10 we recognized the cost of buying distressed (hotels) was a fraction of the cost and a fraction of the time of developing new hotels,” said Shah during a break at the 25th annual Hunter Hotel Conference. “We were driven to buy as many properties as we could in a short timeframe because we knew it wouldn’t last forever.”

In the past three years, the company purchased 22 hotels, many of them like the acquisition it made in February 2012 of a 60-room Comfort Inn in Brandon, Florida. The company paid $1 million for the foreclosed property and spent an additional $1.5 million to renovate and rebrand it as a Best Western Plus. The cost to the company was $41,666 per room.

Shah’s legacy is his father, Raxit, who launched the company in Ohio in 1980 and developed and invested in scores of properties in its home state as well as in Tennessee, Texas, Georgia, Michigan and Indiana. Then, said Punit Shah, in 2005 his father sold the entire portfolio and moved to Florida.

“I didn’t agree with him at the time as I was out of a job, but it turned out to be a great move,” said Shah, who then turned his attention to developing a beachside condominium in Florida. He got his first exposure to turnaround properties with the purchase of a rehabilitation center in the Tampa Bay area that had lost its license.

“I picked it up for $1 million, and we invested another $1 million to make it an assisted-living facility. That was my first taste of distress,” said Shah. It wasn’t his last.

“In February 2010, I bought my first hotel mortgage. It was a small La Quinta in Tampa,” he said. “I bought the mortgage for a fraction of the original cost, restructured it and made a killing.”

Shah said in many of the deals he’s made it not the capital structure but the management that is the reason for a property’s distress.

“The biggest issue is owner-operators who don’t understand how to run a hotel as a business. They think it is real estate. It’s not; it’s a business that happens to have a real estate component to it,” he said. “That was the biggest change in market dynamics from 2007 to today. People understand now that hotels are businesses, and more importantly banks understand that hotels are businesses.”

Simultaneous with its buying spree, the company built a management organization to operate the growing portfolio.

“I knew if I wanted to grow, I had to put these people in place ahead of time,” he said. “Because of my dad, I was able to see how to create a management company and how it is supposed to operate when it is fully scaled up.”

New development
Liberty recently stepped away from its distressed strategy with the announcement that it will develop a 130-room Aloft Hotel along the Hillsborough River in downtown Tampa. Liberty partnered with Convergent Capital Partners, which acquired the vacant office building that will be adapted to hotel use.

Shah said he looked at a range of possible brands for the project but selected Aloft because he believes it matches the changing demographics of Tampa. “It’s becoming more a (Generation) Y market, which makes Aloft a perfect fit,” he said.

He sees little difference in the operating model of the Aloft and the mostly select-service hotels already in the company’s portfolio.

“It’s a 130-room hotel, and we have several properties that size. There’s no major food component; it’s more of a bar,” he said, comparing the operations to what’s involved with the increased breakfast standards from many of the limited-service chains. “It’s really no different, except now we get to charge for (food and beverage.) The back of the house in this hotel will be nearly identical to what we have in our so-called select-service properties.”

Construction on the hotel started two weeks ago, and the hotel is scheduled to open June 2014.

The future
In what Shah called the “next practical step for our business,” Liberty is putting together an investment fund that he hopes to close this year and will be used to acquire select-service properties and portfolios.

“There is a void in the marketplace for this kind of investment vehicle,” he said. “Most funds focus on larger, big-box products because they can put more money out (with each transaction). But select service has higher profit margins and lower risks because you can spread that same amount of capital among multiple assets. Also, it’s something I’m very familiar with and within my comfort level.”

Shah is bullish on the future of the industry, particularly in Florida, where many of Liberty’s products are located.

“Supply and demand is the fundamental metric in our business, and when there isn’t much new supply but demand keeps growing, those with (existing hotels) will do well,” he said. “I don’t see much new construction this year, and while there will be some starts in 2013 and openings by the end of 2014, we will have almost two more years or little or no supply growth.”

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