Banyan Investment bets on ‘recession-resistant’ growth
Banyan Investment bets on ‘recession-resistant’ growth
19 JANUARY 2018 8:43 AM

Officials with Banyan Investment Group believe they can double the size of their owned and operated portfolio within three years, and the types of properties and markets they target insulate the company from the effects of cycle dynamics.

ATLANTA—Banyan Investment Group is in heavy-growth mode, and officials with the company aren’t worried about the state of the cycle as they work to scale their business.

The ownership and management company, which has offices both in Atlanta and Miramar Beach, Florida, with 14 owned and operated properties across the U.S., is expected to double in size within the next two to three years, according to Chief Investment Officer Andy Chopra.

“We’ll do that by continuing to focus on the types of markets that we ideally search for—those are submarkets with really consistent and recession-resistant demand generators, like state capitals or submarkets with medium-to-large-sized universities or markets that have a health care component like large teaching hospitals and markets that can contain more of a heavy manufacturing component,” he said. “We want markets that have a minimum of two of those drivers present.”

Beyond finding the perfect markets, Banyan officials like to work in the select-service segment under brands like Hampton Inn, Holiday Inn Express, Fairfield Inn & Suites, and Courtyard by Marriott. 

“The reason we like select service, and the reason most like it, is the predictability of expenses and the ability to maintain margin and yield higher than other classes of real estate,” he said. “We want to focus in on (maintaining) our above-market (net operating income) and minimum cash yield to our investors of 13%. That’s our target, and select service as an asset class gives us the best chance of doing that since we’re operating our own assets. And it allows us to flex our labor up when occupancy increases and down when it decreases.”

The company recently announced the acquisition of three Midwestern hotels, all flying flags of Marriott International brands, for a combined total of $30 million.

In a series of two deals at the end of November, the company purchased the 105-room Fairfield Inn & Suites Chicago St. Charles, the 92-room Fairfield Inn & Suites Chicago Naperville and the 129-room Lansing Courtyard by Marriott in Lansing, Michigan. Both of the Fairfield properties are located in suburban Chicago.

Chopra said there are multiple reasons why those hotels were appealing.

“The brand affiliation is huge,” he said. “Marriott is one of the best brands out there. That combined with being able to put in place a CapEx plan and a PIP plan with the most current standard—it’s an opportunistic angle for us. The hotels do require—depending on the specific property—fairly considerable renovations. In exchange for that, we got long-term franchise agreements for all three and can preserve asset value into the future. And that allows us to leverage an increase in rate with a newish product.”

He said the company’s strategy frees Banyan officials from having to be cycle-watchers.

“We’re not worried about cycle timing,” he said. “These properties are recession-resistant for us. And the other side is the basis we acquire at. We feel comfortable we’re at a basis that will allow us to absorb any potential shock associated with economic contraction, as long as those shocks are less pronounced.”

Despite the confidence that Banyan can weather a storm, Chopra remains bullish on the state of the hotel industry going forward.

“We feel very confident going into 2018 that we’ll still see (revenue growth),” he said. “In the past it was driven by occupancy and rate. Moving forward in 2018, it will be driven more incrementally by rate.”

He noted supply growth is a concern but from his perspective it remains “muted” compared to the previous cycle and “below the long-term average.”

“Demand continues to grow, and supply really hasn’t kept up with it,” Chopra said. “Lenders have done a remarkable job maintaining strict underwriting standards. They’ve put a bit of a governor on growth, and that’s not a bad thing. That makes this cycle a bit unique.”

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