While executives with AMS Hospitality and Black Salmon said they’re targeting discounted assets with their new $300-million joint venture, they said their primary goal is to find quality assets in strong Southeast U.S. markets.
MIAMI—The recently formed joint venture between AMS Hospitality and Black Salmon was years in the making, according to executives from both companies.
Jorge Escobar, CEO of commercial real estate firm Black Salmon, said he’s known the AMS team for years, as both companies are based in the Miami area, but the conversations about starting a joint venture to chase hotel assets arose “a couple of months” prior to its early December announcement.
He said this is the right time for the companies to make a move in the hospitality space because of the unique factors impacting the hotel industry.
“Both of our companies are aligned, and our investors are aligned because this is a very basic and simple thing to do,” Escobar said. “We’re trying to find good hospitality deals due to the current distress situation due to (COVID-19). That’s a very easy investment strategy to sell to investors.”
AMS is itself a relatively new entity, launched in early 2020 as a partnership of The Allen Morris Company and Stormont Hospitality Group.
Spencer Morris, EVP of The Allen Morris Company, said he’s been looking to Black Salmon for some time. But this joint venture, which aims to spend $300 million on hotel assets over 18 months, was the first project “that fit the box for both groups.”
The joint venture made its first purchase in December by picking up the historic Pelham Hotel in New Orleans. Morris noted, however, the 65-room boutique property might not be the exact blueprint for the types of assets they will chase, at least in terms of size. He said they’re looking to target more assets in a 100- to 200-key range while being agnostic about whether they are branded or independent.
“We like lifestyle assets with character—a good story with good bones,” he said.
The joint venture will focus primarily on the Southeast U.S. with executives identifying “10 key markets” where they’d like to pick up assets. Those include locations such as Miami and Tampa in Florida; Savannah, Georgia; Asheville, North Carolina; and Birmingham, Alabama.
Escobar described their target asset type as those in markets with a solid combination of business and leisure demand drivers as well as something akin to “boutique select service” that require some capital expenditures and modernization.
While Escobar noted the possibility of distress on the market is what spurred the partnership, Morris said they aren’t limited to distressed properties.
“There are better prices in this environment, but we’re looking for quality assets in quality submarkets,” he said. “We’re looking for discounts, but that’s not our core thesis.”
Escobar said deals would ideally see discounts of anywhere from 15% to 40% compared to 2019 valuations.
“That’s our target, and it’s not just wishful thinking,” he said. “We are seeing some already, and as soon as we announced (the joint venture), our deal flow increased a lot. People are eager to find new partners with this strategy and liquidity.”
Escobar said there is ample reason for optimism for the hotel industry in the long term, and their underwriting assumes a return to 2019 performance levels at some point around 2023 or 2024.
Both Escobar and Morris noted that if the partnership goes as well as hoped, there will be ample opportunity to expand its scope beyond the $300 million initial funding. Both also were hopeful that their capital will be deployed well before the end of the 18-month timeframe they provided.
“If we could deploy it in six months, that’d probably be a better outcome for us than 18 months,” Morris said. “We’re starting to see opportunities for acquisitions become more available, but we don’t know what the extent we’ll see is yet.”
He said that if the joint venture can deploy its funds in six months that both sides will “definitely be looking into round two” for investment.
Escobar similarly expected “the next three to six months to be very active” for deals.
Morris said that so far there has been a significant amount of competition for deals up to this point, with other private equity players similarly eager to find discounted assets, but he added the asset type they’re targeting is a bit smaller than what the larger private funds are looking for.
“There are large groups raising funds for distressed acquisition strategies, but the reason we like the space we’re looking (at) is it’s too boutique and small of an average check size for those bigger funds,” he said.