Now that Crestline Hotels & Resort’s acquisition by a number of principals of AR Capital (ARC) is complete, the third-party management company is poised to appreciably grow its portfolio in the U.S. by sourcing, underwriting and entering into new agreements for stabilized select-service and full-service assets affiliated with major brands.
Crestline CFO Edward Hoganson told HOTELS that ARC has created a non-traded hospitality REIT that has already signed a deal to acquire six assets worth north of US$100 million expected to close on March 1, and Crestline will take management of all six assets.
Going forward, due to its relationship with ARC, Crestline might be brought in to manage (some will not make sense for Crestline) and will also continue to grow on its own through existing relationships. Today, Crestline manages 44 hotels across the U.S. for REITs and owners such as Host Hotels, RLJ, Chesapeake, Apple and Sunstone, representing 7,500 rooms and US$375 million of annual revenues.
“A lot of Crestline’s growth comes from current owners who know us and our value, which is driving premium revenues,” Hoganson said. “We might not be the absolute lowest cost model but by driving the top line we get more juice to bottom line. We have a robust sales and marketing team all headed by seasoned veterans. We always see more opportunity to drive revenue as there is only so much that can be cut on expense side. As a result, we have 120% RevPAR penetration across our portfolio.”
Hoganson said the ARC REIT is starting from scratch with an approved US$2 billion in equity that will be leveraged 50% to make it a US$4 billion fund that should be deployed over 24 to 36 months. Crestline will source deals for ARC and act has an asset manager for all hotels the REIT acquires.
Hoganson added that the focus for acquisitions will be on stabilized select- and full-service branded assets in secondary markets with lower cap rates. “This is a terrific growth opportunity for Crestline,” Hoganson said. “We want to grow exponentially and have three new people on our deal team. We do have some equity to throw into deals and still have an equity interest in about 20% of our portfolio.”
Crestline will continue to grow on its own, but will grow a lot with the ARC platform with Hoganson anticipating the addition of 15 to 20 contracts in 2014. “With the capital raise we will ramp up and grow more in 2015,” he added.