HOTELS Interview: Creating success on the California coast

Even in the competitive coastal California market, Pacifica Hotel Co. has found plenty of ways to shine.

The Santa Barbara, California-based company is a family business — headed by Founder and Chairman Dale Marquis and his two sons, President Matt Marquis and Adam Marquis, who oversees asset management and business development. It currently owns and manages 24 properties in prime coastal locations, largely in California, and even in a challenging economic environment has logged recent noteworthy acquisitions such as The Belamar Hotel in Manhattan Beach, California, and Cambria Landing Inn in Cambria, California, in addition to numerous renovations and upgrades.

HOTELS spoke with Matt Marquis about Pacifica’s strategies for success, the overall hotel market in California and the company’s outlook for the future.

Pacifica Hotel Co. President Matt Marquis
Pacifica Hotel Co. President Matt Marquis

HOTELS: What do you see as the keys to getting deals done in the current market environment?

Matt Marquis: I think it’s the ability to be creative, the ability to see opportunity when it arises. It’s a difficult market right now — financing is very tricky. We have the advantage of having ready, available capital through our investment arm, Invest West Financial, which is almost a parent company that provides private equity to us. We also have some institutional partners that can do bigger deals with us. So we have the luxury of having some available capital right now, so we can go for very low financing, which is somewhat available in today’s marketplace. We did close Belamar (acquired last March) all cash, so that was a competitive advantage we had over other people looking at that property.

We have a very unique acquisition team right now. I have a couple ex-PKF Consulting guys who actually come from Hyatt operations. They have both the ability to underwrite investments and the knowledge of what it takes to run a hotel. That’s unusual on an acquisition team.

HOTELS: How has Pacifica been able to continue investing in renovations and upgrades?

Marquis: We’re a very conservative group. During the downturn, we went into cash-conservative mode. We were able to retain very high cash balances, which allowed us in our partnerships and at our properties to, as we came out and saw a much healthier economy, invest money in our assets where we felt it was needed and gain a competitive edge over the marketplace.

We’ve done lots of renovation in the last little bit. In the last two years we’ve done US$35 million of renovation where a lot of people are just trying to get their hotels back in the black. That’s allowed us to capture market share, get high occupancies and to push our rates. Rate growth is coming.

In the next six to 18 months, we plan to do another US$45 million of renovation. We have three [properties] in the L.A. area that are going to undergo significant repositioning. The ability for us to have that capital readily available allows us to be able to make those renovations and gives us a competitive advantage as things are getting better now.

HOTELS: Among the recent announcements of Pacifica’s acquisitions and renovations, what stands out most to you and why?

Marquis: We were able to acquire Cambria Landing recently. It’s a 27-room, boutique, borderline bed-and-breakfast in Cambria (California). It’s almost too small even for us, which is saying something. It was an opportunity — because we already had three assets on that strand on Moonstone Beach — to acquire another hotel asset that really had some great upside. It was family-owned. It hadn’t had a lot of capital put into it. So we had an opportunity to apply our professional management expertise and infuse some capital into this asset. That was a great investment for our individual investors, our private investors and our own family.

In contrast, we were able to acquire the Belamar in the first quarter of this year, and we did that with an institutional capital partner. They were very attracted to our operating efficiencies and to our ability to control revenue. It was already a great asset — there wasn’t much we had to do to it — but we knew we could operate it at a more efficient level. We felt there was opportunity on the revenue side, and so far, in the first four months, we have outpaced our pro forma pretty significantly.

HOTELS: What do you think makes Pacifica’s overall strategy distinctive today, and how has it evolved over time?

Marquis: My father started this business, and he realized very early that there’s only a finite amount of oceanfront real estate in California, and you can never have too much. We’ve really clung to that vision of acquiring properties in coastal cities. We try to stay in those high-barrier-to-entry markets.

My father is also a former CPA, so he has a lot of attention to detail, which filters down through the team here. We have tremendous operational efficiency in our management company. We have team members that really buy into what we’re trying to do here and are very profit-oriented. We have great controls and systems and excellent market expertise up and down the coast.

We’ve also been growing over the past 10 years our web presence, and our Pacifica website contributes 30% to 35% direct bookings to our independent hotels, which is huge because we’re able to have a much more efficient way to book hotels.

HOTELS: What are your thoughts about the hotel market climate in California in particular right now?

Marquis: In the investment market, it’s a difficult market to acquire assets, especially along the coast. We see a very high demand for quality right now, especially in the coastal product. It’s challenging. You have to be creative. You have to be able to assess if a price is even reasonable, because a lot of times if you’re buying on the coast it isn’t. Then you have to come up with a strategy that will allow you to make a solid investment at what may be perceived as a high price.

There’s opportunity in some of these. Cambria Landing was a good example. We paid a fair amount for the condition that hotel was in, but we know what that market can do. There were some very unique rooms in that property. We knew if we repositioned and brought the quality of that property up we could get good rates for those rooms. That’s the mentality you have to have for investing in coastal California real estate.

As far as operations in California, we’ve seen very high occupancies in the last couple years. On the occupancy, revenue and even NOI side, the profitability side, quite a few of our hotels are now approaching or surpassing those record levels of 2006-08.

HOTELS: To what do you attribute that success?

Marquis: I attribute it to a cautiously improving economy. Especially on the coast, we were not affected nearly as badly as some of the offshore luxury hotels in Hawaii or the Caribbean because people became very value-minded guests. They wanted to take the family to the ocean, but they didn’t want to break the bank doing that. A lot of our assets are on phenomenal beaches. A lot of our hotels offer a great combination of phenomenal locations, great quality of product and unsurpassed service.

HOTELS: What can you tell me about Pacifica’s future plans for growth and market positioning?

Marquis: We’re looking to strategically grow in our marketplace in both the boutique hotel sector and institutional assets. We have large equity funds and REITs that want to partner with us and leverage our operational experience and our ability to revenue manage. We’re becoming known as a good operator. It’s something we want to continue to build in our business.

We also want to stay in this coastal orientation. That doesn’t mean we wouldn’t look at other coasts around the country. We’ve shown we can operate small, 30- to 60-room inns, we can manage brands and we have the large box. We really like San Diego, Orange County, L.A., the Bay Area and the Central Coast. It’s really up and down the California coast. We have successful assets in every one of those markets — 95% of our focus in on California. That’s really what we do extremely well.