ATLANTA—With a fourth acquisition fund under its belt, Kimpton Hotel & Restaurant Group is looking to bolster its portfolio.
The company recently closed a $203-million fund that will be used to acquire existing hotels that fit the Kimpton model, acquire non-hotel buildings that can be converted to Kimpton properties, and develop hotels in urban and resort areas within the United States.
During a break at the 25th annual Hunter Hotel Conference last month, Kimpton’s CEO Mike Depatie said the fund can be leveraged to do more than $500 million in acquisitions or development amounting to seven or 10 hotels.
Kimpton Hotel & Restaurant Group
“We think it’s a very good environment to make investments,” he said. “It doesn’t mean that that’s easy. It’s still very competitive out there.”
Kimpton has raised approximately $700 million for various funds since 1997, but even with that track record, the fundraising environment is challenging, Depatie said.
“It still took us a year to raise the fund, and we did it from a lot of our existing investors,” he said. “We did not use a placement agent. I would not recommend it for someone just starting out thinking they’re going to raise a fund. It’s a very difficult environment to do that.
“That being said, there’s a lot of equity capital out there that can be tapped and there is now debt capital as well.”
Depatie said the financing market is “getting better by the day.”
“We’re seeing more participants coming into it,” he said. “We’re seeing better proceeds levels, and we’re seeing better terms.”
Adaptive reuse has played a key role in creating distinctive experiences for Kimpton guests, Depatie said. The company recently opened the 268-room Monaco Philadelphia, which was originally an existing office building built in 1907.
It can be difficult to find a hotel to acquire in a city-center location, Depatie said, so in those cases, adaptive reuse can make sense. “You manufacture a great location,” he said.
The current transactions environment can be challenging for some companies because there are so many other companies that have discretionary capital and can move quickly on deals, he said. Depatie counts Kimpton, which has 58 hotels in its portfolio, as one of those companies that can transact swiftly.
“We have very few people to get approvals of, especially in our case, we’ve got our own brand, we’ve got our own financing,” he said. “If you’re competing against that, it’s difficult to be able to show a seller a certainty of close, which they really need right now.”
Still, Depatie expects a robust transactions environment overall during 2013. “A lot of (commercial mortgage-backed securities are) still coming due,” he said. “I think a lot of the pricing in the industry has increased where people feel like it’s a good time to transact.”
Depatie is bullish over the prospects for the hotel sector overall.
“I think it’s really true that everything’s lined up right now to be about as positive as I’ve seen in my 30-year career in terms of supply, demand, in terms of capital,” he said. “The availability of capital is starting to increase, but there’s not a lot of construction yet … which is a good thing for the industry, overall.”
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