Industry transaction dynamics are continually shifting and right now Chad Cooley, co-founder and managing partner of New York City-based AWH Partners, said the ongoing hotel industry recovery is starting to stabilize investor sentiment, which should lead to more acquisition opportunities for this privately held real estate investment, development, and management firm that has invested in 9,500 hotel rooms across 35 hotels, representing billions of real estate value.
AWH Partners, with currently holds 30 hotel assets in 18 states as of early March, is in acquisition mode right now, Cooley said, and is eager to invest after an active 2021, when it bought five, well-timed distressed assets and invested about US$100 million of equity. While the same types of assets aren’t as likely to be available this year, Cooley said AWH would like to do even more volume than in 2021 – “maybe double that or more,” he said, adding in March it was negotiating a 1,000-key property deal.
More recently, AWH Partners acquired the Kimpton Goodland Goleta, a 158-room hotel near Santa Barbara, California, and transitioned it to The Leta, managed by AWH-owned Spire Hospitality. It represented the fifth deal of 2021, all of which were located on the West Coast, and represented US$240 million in purchases with another US$30 million in renovations planned.
Cooley and his team think this buoyant transaction market is going to play out over the next two to three years as owners and PE funds who bought assets in 2015-2016 and had to hold through the pandemic now look to harvest their returns. “There’s this kind of forced turnover,” he said. “It’s not so much driven by a lender who’s going to take over the asset because many assets are worth more than their financing. But it’s just the nature of the business causing the turnover, and we look for opportunities where we think the owner needs to sell – it’s a better dynamic in the buy-sell process.”
Cooley said AWH, which raises capital around each investment opportunity from a wide variety of investors, is not focused on any single market or asset type, but more on the circumstances surrounding the assets and their evaluations. “But we do spend a lot of time thinking about markets and evaluating growth opportunities within a market, and that drives what we could pay.”
From an underwriting perspective, Cooley expects healthy revenue increases, as well as bigger cost increases. “We are probably more sensitive in places where we think labor expenses might grow faster than inflation – urban environments,” he said.
Proud of the work
Looking ahead on the performance side for this year, some existing AWH assets are forecast to reach 90% of 2019 revenues, but more meaningfully still trailing on a profit basis. That said, Cooley believes AWH is in that position based on the work it did during the pandemic.
“We’re really proud of the work we did during COVID,” Cooley said. “We were working day and night on balance sheets, cash management and cost structures. I think we came up with some fairly creative ideas – we sold rooftops, leased parking lots and we found longer-term groups that never would have stayed in our hotels to generate revenue in a time where there wasn’t any other demand… We really created value in different ways through pulling those levers on asset management in 2021, without a question exceeding our expectations on every level.”
AWH was also “brutally transparent” with every single lender and investor, telling them the pandemic was going to create an operating environment worse than anything seen before. Cooley said that maneuver was one AWH’s most important takeaways that will stick with them for a long time.
“We found that high level of communication paid huge dividends because our lenders and partners from those first calls said we were the first people telling them what was coming,” Cooley said. “It worked to build a rapport and then we started working on this together. We brought capital to the table for almost every single asset to smooth the way. But we received huge concessions from our lenders, too.”
The result: Not a single hotel asset was lost and today every asset that is in the portfolio is in good standing, Cooley said.
AWH also spent much of COVID automating its investment process through a cloud-based database that is starting to pay bigger dividends. AWH dealmakers are more likely able to make evaluations today in three hours instead of three days. “It’s not making investment decisions for us, but it’s putting all the information in front of us for a healthy conversation,” Cooley added.
On the performance side last year, Cooley said the group regularly beat monthly budgets – handily so by the end of each month. In fact, in December 2021, with a primarily urban, corporate and group focus, RevPAR exceeded 2019 levels.
Again, looking ahead, the edict is don’t assume a slow recovery, according to Cooley. “Let’s take what we learned in 2021, which is this market is going to come back fast if the circumstances will allow… We’re very bullish on the pace of recovery once we’re kind of beyond the risks.”
Most of the AWH assets are managed by Spire Hospitality, which Cooley also said did a remarkable job during COVID. “There were so many hard decisions to make during COVID. But CEO Chris Russell did it like a pro,” Cooley said. “We are on track to have by far the biggest year ever for Spire’s revenues and profits.”
Generally speaking, Cooley said over the next decade AWH is expecting a renaissance in the hotel business. “Mobility and the desire of people to travel has grown exponentially and will continue to do so, and that’s going to drive value in our business.”