Electra America fund gets ahead of changing travel patterns 

Russ Urban believes Electra America Hospitality Group, a joint venture between real estate private equity firm Electra America and luxury longer-stay expert AKA, has its timing right to deploy a recently closed US$700 million fund and take advantage of sellers looking to shed non-core assets to prop up their businesses and meet their liquidity needs.

Even better, said Urban, CEO of Electra America Hospitality Fund I (EAHG I), is the somewhat unique and narrow niche the new group targets – luxury and 4-star, multi-night stays with a hybrid boutique hotel and serviced residence offerings that AKA President Larry Korman likes to call “vertical villages.” For example, a recently acquired new-build in West Palm Beach, Florida, will feature studio, one and two-bedroom layouts ranging from 351 square feet to over 840 square feet. Originally designed as micro-apartments, all suites and residences will have a kitchen or kitchenette to cater to longer-stay guests.

“We believe that with demand and travel patterns changing that this could be a great time to continue to expand and help AKA expand its strategic footprint,” Urban said. “It’s all driven from finding a niche within a rather large business… We have the ability to bob and weave with the right product in the right markets – something you can’t do freely with some of the larger brands.”

The new fund also acquires assets in markets where there’s a big diversity of demand between leisure and corporate. “We can basically do a direct sales effort to drive business,” Urban said. “We rely very little on OTA business and the average length of stay for the portfolio is about nine days… The key is to have the right number of rooms in the right markets. It does not work in suburban markets, although we might consider resort settings.”

Exterior rendering from the Hotel AKA Nomad in New York City

To date, the fund, in which AKA is an investor, has acquired five assets and fund CEO Urban said a deal in Boston could be next. Just this week, Electra America Hospitality Group acquired the 152-room One Washington Circle Hotel in Washington, D.C., for an undisclosed price from George Washington University. The hotel is set to undergo a US$30 million renovation and will reopen in June 2023 as an AKA-branded luxury hotel residence.

In mid-June, EAHG I had already deployed more than US$200 million of capital for the acquisition, including seed assets such as a 194-key boutique hotel in Manhattan (Hotel AKA Nomad), a 178-key hotel in the heart of Old Town Alexandria, Virginia (Hotel AKA Alexandria), a 201-key high-rise hotel in Brickell, Miami’s financial district (Hotel AKA Brickell) and a brand-new property in downtown West Palm Beach, Florida, that will be called AKA West Palm. The Brickell property was the only one open by late spring as the others are going through renovations. Again, if their timing is right and the market is back to optimal trading levels by 2024, the initial set of assets should be humming along from a GOP perspective.

Disciplined bidders 

Over the next two years, Urban said the group hopes to deploy the fund in full, but it will be selective throughout the process. It is primarily targeting independent hotels in major gateways with strong growth potential. EAHG continues to source opportunities in Southeastern Florida, Southern California, Austin, Texas, Nashville, Tennessee, and London, along with additional properties in Miami and New York City.

With supply chain issues impacting renovation schedules and higher interest rates affecting the cost of capital, Urban said deals might be a bit tougher to close because overall yield becomes harder to achieve. “It will cause us to be more cautious in our underwriting as we move forward,” he added. “We will stay disciplined relative to buying and as realistic as you can about the timeframe of execution.”

“We have the ability to bob and weave with the right product in the right markets – something you can’t do freely with some of the larger brands.” – Russ Urban

Urban said the fund has been outbid on some deals because it wants to stay very disciplined on pricing. “We try to go after deals that either we have a high confidence level in our ability to execute and or properties that we believe we’re getting at a highly compelling price because of their need for renovation… We’re also more amenable to getting creative on how we put together a business plan. While we’re institutional in our underwriting quality, we tend to be a little bit more entrepreneurial in how we view our business plan.”

Urban pointed to its Manhattan project, which is undergoing a major physical transformation to 4-star-plus status. “We believe in the marketplace and our execution ability there,” he said. “So, we were also able to change the capital structure there a little bit by extending the term of the ground lease. Little things like that all add up to some tremendous value add.”

Forward looking 

From a product perspective, Urban said AKA will become even more friendly to businesspeople trying to work remotely. “Your technology has to be not just good, but it must be great. And you need to be forward thinking in terms of your broadband capabilities. So, we’re going to be way ahead of the curve on that.”

AKA is also going to make sure that the spaces in the building allow guests to be comfortable for several days with breakfast and evening cocktail hour made a part of the amenity plan. Restaurants will continue to be leased out as leadership also sees great, adjacent food and beverage as very important.

Façade of Hotel AKA Brickell in Miami

The brand will be flexible with meeting space and focus on more social business and small corporate meetings. It will also maintain its signature small movie theaters to cater to the entertainment business that like to do their editing on site at night. Oversized, high-end fitness facilities will also remain key to the AKA offering, according to Urban.

The overall investment and direction for the fund and AKA are all crucially forward looking and Urban said it’s imperative because a very different demographic with different needs and patterns is going to be traveling the most over the next 10 years. “We, as an industry, need to be receptive to what that’s going to look like, and I don’t think we’ve been terribly forward thinking all the time… We need to be more progressive because the world is changing faster than it ever has before.”