Atlanta-based Hotel Equities is expanding its equity stakes thanks to a private-equity strategic alliance and is growing in places like Canada, Texas and California.
ATLANTA—Hotel management and development company Hotel Equities is several months into a new equity partnership and has regional expansion as a top priority.
Chief Development Officer Joe Reardon—who has been with the Atlanta-based company since 2012 and worked as CDO since October—said those elements are bringing the company new opportunities and growth mechanisms, like opportunity-zone development and regional expansion into places like Canada, Texas and California.
In 2018, Hotel Equities’ portfolio grew nearly 30% and the company nearly doubled its employee infrastructure. Amid that growth, Reardon said it’s absolutely critical to be deliberate and smart about where the company is headed.
“No matter what our growth mechanism is, our culture can’t change through it,” he said.
For a company long known for the culture imparted by Founder and Chairman Fred Cerrone, Hotel Equities must maintain its focus on culture, Reardon said. Known throughout the company as “Coach,” Cerrone holds regular company culture and leadership training for all Hotel Equities employees.
“If we can’t handle a deal, I don’t want to do it,” Reardon said. “I always ask, ‘Is that owner aligned with us?’ If owners can’t understand that our culture is what keeps us alive and creates great results,” the deal is off the table.
“We’re adding components now that make us look a lot different than we used to,” Reardon added. “But we’ve been very deliberate. We’re keeping operations in line with growth.”
Virtua Partners partnership
In September, Hotel Equities announced its strategic alliance with private-equity firm Virtua Partners, which is making a series of investments totaling more than $500 million into Hotel Equities.
The partnership “puts us in a different position now,” Reardon said. “Now we have ownership in about 25% of our assets, and we’d like to see about 50% ownership at some stake, and 50% on the management side.”
Today, Hotel Equities’ portfolio of managed and part-owned properties is 128 hotels across 28 brands.
Since the alliance with Virtua, the companies together have struck several deals, including purchasing the Fairfield Inn & Suites Colorado Springs North/Air Force Academy, and breaking ground on an opportunity-zone development: a new-build Springhill Suites by Marriott in the Phoenix suburb of Avondale.
The opportunity-zone program is one Reardon said the company is excited about.
“We think it has a lot of legs to it, and Virtua Partners have relationships to help understand the regulations,” he said.
About half of the eight acquisition deals Hotel Equities is looking at right now are opportunity-zone projects, he said.
The company recently launched a hospitality fund with Virtua Partners with a focus on new development in opportunity zones and acquisitions of underperforming existing assets.
All in all, he said the company’s development outlook is good.
“Some (deals we’re doing) are just land. Some are less than 40% construction on a really nice branded project that we were able to take the owners out,” he said. “We’re definitely buying assets today that aren’t in opportunity zones. It’s a real fast-forward from five years ago, and now we’re in a place where we have capital.”
“It’s a good mix of new development and operations,” he said. “Now we have this well-rounded organization where we can take your project and help you turnkey do the whole thing.”
Thoughtful regional expansion is another big focus for Hotel Equities, and lately the company has been turning its sights north into Canada.
The company manages 17 hotels in Canada and is in the process of establishing a regional office in Edmonton, Alberta.
“We saw (Canada) as a white space about two years ago,” Reardon said. “We studied it. We didn’t want to just jump in. We had to understand the social responsibilities in Canada, the employment, the legal ramifications, the HR components—all of it.”
The company set up business accounts in Canada and took over management for two Marriott hotels in Edmonton in early 2018. That led to a strategic partnership with APX Hotels to operate eight hotels in Alberta, and more opportunities are on the way, Reardon said.
“Demand is two times supply there, for both leisure and business,” he said. “There’s a lot of runway to grow and just not enough strong brand presence up there, so we see the brands jumping in and we’re tied in nicely with brands like Marriott, Hilton, IHG.”
He said workforce development in Canada is important to the company, which was another reason to establish a local office there.
“Minimum wage is around 15 (Canadian dollars) an hour (in Ontario and Alberta), so we’re being careful about creating a workforce development structure there,” he said, adding that the company is in conversations to partner with a Canadian hospitality school on management training.
Capital investment into Canadian projects is also in the company’s plan, Reardon said.
“We’re looking to make a significant investment into hotels in Canada, either as a (joint venture) with a partner, or through deals we’re looking at,” he said. “We know we need to spend money in the market to show we’re serious. Or dollar goes further in Canada, so we have banking up there and we’ll continue to keep our money there. We think the runway is good for brand growth.”
Additional regional growth
Texas has been a fast-growing state for Hotel Equities—the company manages 10 hotels in Texas and has another 14 under development.
Last summer, Hotel Equities opened a regional office in Houston, and next on the horizon is a regional office to handle the West Coast.
In 2017, the company hired Greg Presley as VP of business development, and Reardon said his sole focus has been to increase the company’s West Coast footprint.
“He has brought in close to 15 deals on the West Coast—a good mix of Marriott and Hilton hotels,” Reardon said. “California and Arizona is where a lot of our growth has been coming in, so because of that growth we need an office out there.”
California represents some of the non-gateway markets Reardon said Hotel Equities is particularly interested in.
“We look at second- and third-tier cities, like Bakersfield, California,” he said. “We know what brands are missing and what owners to attract.”
The company’s strategy in those second- and third-tier cities is to sit down with its brand partners and plan growth together, Reardon said.
He cited projects in the works in Winston-Salem, North Carolina, where the company is working on a Courtyard by Marriott with a rooftop bar; and a dual-brand SpringHill Suites and Element in Colorado Springs, where Hotel Equities is a part owner.
“Second- and third-tier cities can be just as profitable as urban cities, but they have lower land costs and it just costs less to get them done,” Reardon said. “We’re helping interject brands where they want to be.”