Unique deal structures propel Driftwood’s expansion
 
Unique deal structures propel Driftwood’s expansion
07 JANUARY 2019 8:35 AM

With its latest agreement to buy a portfolio of Atlanta hotels in a joint venture, Driftwood Acquisitions and Development’s M&A strategy and investment structure are continuing to pay dividends.

MIAMI—Driftwood Acquisitions and Development announced its entry into a new U.S. market as it continues to add to its portfolio and garner support from investors, according to company executives.

In December, Driftwood acquired three Marriott International-branded properties in Atlanta as part of a six-hotel Marriott select-service portfolio from Atlanta-based Hotel Development Partners, with the remaining three properties owned by a joint-venture partner, according to news releases from Driftwood and Hunter Hotel Advisors. All six hotels will be managed by Driftwood Acquisitions and Development’s sister company, Driftwood Hospitality Management.

Carlos Rodriguez Sr.,
Driftwood

Driftwood Acquisitions and Development CEO Carlos J. Rodriguez Sr. said his company has long been interested in expanding to Atlanta, which he described as a “red-hot market.”

“The GDP of the city has been growing by leaps and bounds, and it’s a very fun market,” he said.

As part of the deal, Driftwood Acquisitions and Development acquired the 115-room Fairfield Inn & Suites Atlanta Buckhead, the 114-room Fairfield Inn Atlanta Perimeter Center and the 88-room Fairfield Inn & Suites Alpharetta, which brings its portfolio to 18 hotels with two new-builds in the pipeline.

COO Carlos Rodriguez Jr., the CEO’s son, said the three hotels his company acquired are in submarkets “that we most desired in Atlanta with the most growth.”

“We’re very conscious of markets, and Atlanta has always been one that we wanted to participate in,” Rodriguez Jr. said.

The remaining three Atlanta properties owned by Driftwood’s joint-venture partner are the 82-room SpringHill Suites Atlanta Alpharetta, the 88-room TownePlace Suites Atlanta Alpharetta and the 81-room TownePlace Suites Atlanta Kennesaw.

Rodriguez Sr. said the structure of the deal made the most sense.

“When the opportunity came that we could split the portfolio—we buy half and the other half is bought by our partner and we manage all six as a company—it was a great opportunity so we were all over it,” he said.

For most of its deals, Driftwood Acquisitions and Development’s investment strategy involves funding a hotel or portfolio purchase completely and then offering up to 90% ownership of the assets to accredited investors while Driftwood Hospitality Management assumes management of the hotels.

“We buy the deal 100% ourselves, and then once we bought it and closed on the deal, we basically package it and syndicate pieces of $100,000 a piece to our accredited investors. Sometimes we reduce that to $50,000 a piece to our accredited investors, and we syndicate the pieces but we always keep 10% ownership, and we always keep control,” Rodriguez Sr. said.

It’s a model that’s been successful since the company launched in 2015, he added.

“With that money, we turn around and look for more hotels to buy and syndicate to our network of investors,” he said. “It’s worked out very well. We’re developing our own platform where people can be on the internet and connect to our website to see what’s available that we’re selling, and they can get all the information and download it and take a look at it and if they want to invest, they invest with us.”

Carlos Rodriguez Jr.,
Driftwood

Rodriguez Jr. said crowdfunding has become popular, but his company and its investors are much more comfortable keeping the structure internal.

“With the growth and success we’ve had, it’s clear the model is well-liked in our own circle. And now you see a lot of other crowdfunding platforms, but they’re doing it in a third-party fashion, and we’re doing it direct, so it’s a little different there,” he said.

Industry outlook
As performance growth continues to slow industrywide, Rodriguez Sr. said he’s not very concerned yet about how soon the next U.S. recession might arrive, especially with demand growth expected to outpace supply growth and lenders being more cautious.

“There are some markets where there might be a different scenario, but overall in whole U.S., the markets look good for hotels,” he said. “There are some troubling issues that we need to be aware of—for example, the rising payroll, the issues with open jobs and staffing. It’s an issue that we need to be concerned about. And then rising interest rates, obviously, because debt is a big component of our industry since it’s such a high investment.”

Rodriguez Sr. added that slowing growth is still growth.

“Outside of a black-swan event, the hotel industry should be performing well for the next few years,” he said. “We don’t see anything in the near future, in the next two, three or four years that would affect the hotel industry to a point where we should be worried. We’re sort of in a goldilocks type of situation where everything is just fine.

“Yeah, maybe the growth of (revenue per available room) might not be as big as we’ve had for the last few years, maybe the growth will be slowing down a little bit, but I do forecast based on what we see from STR that RevPAR will be growing at a nice, modest pace for the foreseeable future.”

(STR is the parent company of Hotel News Now.)

It’s also important not to view stock market volatility as an indicator of the health of real estate and by extension, the hotel industry, Rodriguez Jr. said.

“There’s no real negative indicators today, and the real estate cycles typically last longer than the equity cycles. So in terms of stock market volatility relative to real estate, I don’t think that’s an indicator for our industry,” he said. “You’re actually seeing some capital being allocated more to real estate based on that volatility.”

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