In October 2023, a portfolio deal enabled a startup hotel investment and management platform to build a team.
LHC (Lifestyle Hospitality Capital) Group took a majority stake in the Dean Hotel Group, a collection of hotels in Ireland. Since then, LHC has acquired single hotel assets in Munich, Berlin, and Miami to add to the Dean collection.
Independent boutique hotel groups and brands are being snapped up by major chains, observed Jonathan Lee Jones, senior VP investments Europe, LHC Group.
But the hardest thing is to establish an identity with the first few properties. Having already done this, the Dean Hotel Group was a particularly attractive investment and LHC had acquired a majority stake in the company, not just the bricks and mortar, he said.
The collection includes The Dean Dublin, The Mayson, The Clarence, The Devlin, and The Leinster all in Dublin; The Dean Galway; The Dean Cork; and Glasson Lakehouse.
“We strongly believe in Ireland as a good market in terms of the fundamentals there, so that was a very big part of us doing the deal,” he added.
The founder of the Dean Hotel Group, Paddy McKillen Jr, was trying to recapitalise his portfolio without much luck because of the wide bid-ask spread. Jones said: “We saw an opportunity to offer something different.”
There was a conscious effort to provide both Dean Hotel Group and LHC Group with what they wanted. This resulted in a structured deal that released cash for the founders and the McKillen Company, who retain a minority stake and remain involved in the business.
“The founders managed to get a bit of restructuring within their portfolio, cash off the table, but still have the potential for upside by partnering with us and seeing how we can grow the brand and the portfolio to the next stage of its evolution,” said Jones, who was previously the investment director at Ennismore.
There was a fair amount of complexity to overcome. The Dean Hotel Group’s origins are in food and beverage (the group owns and operates 30 restaurants and bars) and Jones discovered that some elements of reporting were not aligned with USALI so that needed to be fixed.
Also, negotiating the shareholder agreements was a unique process, plus there were three lenders involved which added to the workload.
Jones commented: “You’ve just got to keep on top of it and go into the detail. We had to make sure that we worked together with the seller. You can't get something like that over the line by being a typical private equity dude coming in and throwing your weight around. It just doesn't work in that scenario.”
LHC started off in 2023 with a very lean team, but once the Dean Hotel Group acquisition went through, they were able to hire a full workforce covering construction and development, design and branding, and asset management.
“The Dean Hotel Group deal allowed us to build the team, but then also have the capacity to expand beyond that…now doing that across two continents,” said Jones.
In December 2024, LHC purchased the Gates Hotel South Beach in Miami. The hotel is set to undergo a renovation and rebranding as The Dean Hotel - Miami Beach. This first foray into the US follows the purchase of single hotel assets in Munich and Berlin, also set to join the Dean portfolio.
LHC has adopted a vertically integrated model whereby the same entity owns and operates the hotels. It is a current trend for owners to take greater control over the operation of their assets.
Jones said: “We consider ourselves platform builders, rather than pure real estate investors. We think it's a much more efficient and effective way of deploying capital. We can avoid some of the leakage of management fees to a third-party brand. So, in a lot of ways, we can retain value within our box of investment and be a little bit more competitive when it comes to pricing.”
With bid ask spreads remaining wide, the only way to get the volume of deals done that existed pre-Covid is to be creative with structures, reckoned Jones.
“Be creative in what you can offer as a potential buyer and put yourself in the shoes of the seller. Try and find alignment and come away with something that works for both of you. I think that’s the only way.”
All quotes taken from IHIF EMEA 2025 panel: ‘Sealing the deal: key advice from recent transactions.’ The session was moderated by Barry Noonan, legal director, DLA Piper LLP.