What does it take for small, independent and/or minority investors to enter the hospitality sector?
Laying the groundwork
Lan Elliott, co-founder and principal at Acacia Holdings, which owns three, big-box, brand-managed hotels with 2,500 keys in urban markets, worked in hospitality real estate for 15 years before doing deals on his own behalf.
She said that working for other people is a great way to gain an understanding of industry investments and how to work with other peoples’ money.
“Market knowledge and knowing how to do deals helps you when you meet with investors, as well as the network of people you met over the years doing deals,” she said. “We partnered with my former mentor at Host, and that was a great way to gain an entree into investing through the network.”
Lynette Montoya, president/CEO of the Latino Hotel Association (LHA) started her career as a hotel broker. She noted that before her organization was launched in 2016 there was no Latino representation in the hospitality industry.
“I realized there was so much to understand on the hotel investment side, and that’s what really drives who I am and who we are as an association. We feel like there's some missing links where we can really help Latinos look at hotel ownership.”
Armaan Patel, founder of AGA Hotels, began working for his father in the hotel business at age 16. Starting his company with investments from friends and family, Patel now owns a growing boutique hotel brand that operates 24 properties in the Los Angeles metro. “I think there is peace of mind when you're just working with friends and family, because when you succeed, they succeed,” he said.
Raising capital
While Patel continues to do deals under his present financial structure, his company plans to restructure over the next five years to bring in private investors to finance big projects, costing $30 - $40 million or more, that are hard to do with just friends and family capital.
Montoya said that the challenges for Latino hotel investors is understanding the whole sponsorship scenario: how to raise money, feel comfortable investing in the situation or product they’re looking at purchasing, and creating a fund or whatever is necessary to close the deal.
“We’re trying to teach owners and potential owners what exactly to do and look at opportunities to work with one another,” she continued, noting the opportunity for successful Latino hotel owners to mentor their colleagues on putting together a capital stack and the concept of families pooling their resources to finance deals.
The importance of building relationships
Patel spoke to the value of building a network, both in person and online, to connect with as many hospitality pros as possible because you never know where a connection might lead next week, next year, or five to 10 years from now. “You can always learn something from other people, how they're getting deals done, and, possibly how to work together,” he added.
Patel suggested that being present at conferences, getting invited to speak, and reaching out to people on Linkedin are just a few of the many resources available today to connect with people in the industry.
Elliott pointed out the importance of seeking out and connecting with decision-makers, noting that while hospitality conferences attract many people, only about 500 of them are key decision makers. “This is actually a pretty small industry, and relationships last a long, long time—decades,” she said.
In terms of networking, she advised “playing the long game. If you’re negotiating a deal or working with someone, you might get a great deal on that one, but they'll remember you from a relationship standpoint,” Elliott continued.
“People know who the people are that put in bids and always retrade massively, and so your reputation will go with you,” she warned, noting that people stay in this industry and don’t tend to jump around, so it’s important to think about the long game in terms of developing relationships, because you will encounter the same people again and again.
The value in independent ownership
Patel discussed the advantages of being an independent hotel owner, from the standpoint of freedom to design unique environments that standout in markets like Los Angeles, which is saturated with the big hotel brands that all look, pretty much, alike.
“Under our brand, each hotel has a unique identity,” he said. When guests enter one of his hotels, they’re aware this is a different product than a national brand. This has been working out because we're in a primary market, he said, and depending on the location, the look and feel of the neighborhood is worked into the design scheme.
For example: “We’re doing one near a local farmers market and implementing that into the hotel rooms, or in Hollywood implementing designs that more of a Hollywood style hotel.” Patel said.
As a result, we’re getting great feedback from guests, he said, adding that the younger generations, in particular, prefer unique environments like this over big-box hotels.
Investment strategies vary by hotel type
Investment strategies depend on the type of hotel investment. Acacia Holdings’ investment strategy is focused on big-box hotels. “We are known for owning large hotels, and we’re generally in the operating partner role,” “We put together the deal and bring in private equity money to invest with us. So, if the hotel deal does well, if our partners do well, then we do very well,” Elliott said.
“And because we are very specific and focused on the big box, we have expertise in doing that,” he added,
For Montoya, some of the most success members of her organization are looking at portfolio buys, as well as big, luxury projects. One of them, for instance, is building a luxury project in Cocoa Beach. This owner has an investment group that provides investors an opportunity to participate in many of the projects they're working on.
Patel noted the big shift in hotel design over the years since his father bought his first Hotel 8, and the change in what guests expect in a hotel today. “Looking at the future, I think the strategy is going toward larger hotels and more sustainability,” he said. “It’s going with higher level brands like Marriott, Hilton and standing out, doing your own boutique brand.
“I think people understand that it has been a big shift, and the differences in RevPAR and ADR you get out of a boutique compared to a big box, Patel added. “We've seen a big difference between them, and I think the boutiques are doing better right now in the market.”