M Development marches to its own beat 

In March, Aspen, Colorado-based high-end developer M Development acquired the 40-room Amangani resort in Jackson, Wyoming, for a reported US$2 million per key. The price paid for the first Aman-branded resort developed in the Americas raised some eyebrows. But quite honestly, said M President Brandon Tarpey, the market-driven group didn’t bat an eyelash. In fact, Tarpey told HOTELS in mid-July that the price per key method of valuing hotels is antiquated and should go the way of the dinosaur.

As hotel buyers, Tarpey said M Development is much more focused on yields and traditional real estate metrics such as price per foot as opposed to price per key. “I think that’s a useless metric and within 10 years no one will even be discussing that metric,” he predicted. “With the growth of micro-hotels, what does price per key even mean anymore?”

M Development acquired Amangani in Jackson, Wyoming, from the Canyon Group for nearly US$2 million per key.

To back up his premise, Tarpey cites another theoretical example – an all-suite hotel in a luxury market that can be converted to residential. “Does it really matter what I paid per key, or is price per square foot more relevant? Most hotel brokers can’t even tell you what net saleable or net rentable per square feet is,” said Tarpey, who has been with the firm for two years after spending about seven years with the ownership group behind Gurney’s resorts in New York’s Hamptons and Newport, Rhode Island. “We’re traditional real estate investors and buy with fundamentals, and we’re going to continue to do that across asset classes. The arbitrage we see is looking at hotels differently, and if the market thinks we pay too much well that’s okay. We really don’t care. We buy on yield, we buy on replacement costs, and we’re going to continue to buy hotels with that model.”

With another two luxury hotels under development in its hometown of Aspen and taking a cautiously aggressive stance to develop and acquire hotel assets in the U.S and Europe, Tarpey said M Development first looked more broadly at Jackson Hole as a market, as well as the ongoing wealth creation taking place there. Generally, when researching development opportunities, they also tend to look at residential home sales, as well as where people relocated during COVID, realizing these markets are getting harder to build in, not easier.

“We spent a lot of time looking at replacement cost and how hard it would be to recreate a hotel like Amangani,” Tarpey added. And we recognized there was definitely an arbitrage between the time spent building a new asset there and the cost of acquisition. We’ll use that model in select markets, whether it be in Napa Valley, South Florida, etc. But really, the thesis is high barrier to entry markets, and we will continue to look aggressively at hotels like this.”

M Development’s acquisition of Amangani, which it plans to enhance with a significant renovation, was its first in the hotel space as historically the group tended to focus on High Street retail and residential in high barrier to entry markets like Aspen, Palm Beach and Naples, Florida. While further luxury hotel acquisitions are part of the growth plan, Tarpey does see new development as a way forward, as well.

“We see development as a key strength of our business and going forward, I think there’s going to be a lot of opportunity there,” Tarpey said. “We’re starting to reach back out to the brokerage community and let them know what we’re looking for. We’ll be very selective in what we acquire, and we do have a few things we’re looking at right now.”

“As an industry, we need to be a little cautious not get too ahead of ourselves with expensive financing just to close a transaction and keep our development teams working.” – Brandon Tarpey

M Development is looking in the United States and Europe for assets and Tarpey said it will partner with family offices as long-term, generational holders of assets. In fact, Tarpey said its relationship with Canyon Group and its founder Homi Vazifdar, sellers of Amangani, is what sealed the deal. He adds that he hopes to work with Canyon again. “They have great deal flow. We like their team quite a bit and we have the ability to transact with friends,” Tarpey added.

State of the business 

When asked for his take on the state of the hotel business, Tarpey said Europe is now seeing the rebound in the resort space that the United States saw last year.

“Year-over-year, however, I think most of the leisure markets are a little bit down with interest rates rising and a pending recession, if we’re not in a recession… I think we’ll see a pullback in discretionary spending, and we’ve seen companies already starting to pull back corporate travel expenses,” Tarpey said.

Overall, Tarpey believes the state of the economy may temper the market a little bit. “It’s really tough to finance deals right now,” he said. “So, if you need to have the financing to close a deal, or if you’re strictly cash-on-cash driven, buying a traditional limited-service hotel and trying to yield the 12% or 13% cash-on-cash, you need a real heavy price discount to be able to move forward… So, I think we’ll see deals being repriced and some of the institutions putting a pause on acquisitions… We’ll see a small- to medium-price reduction, and then prices will level off.”

Tarpey said everyone should be a little cautious on prices [not necessarily jump on a 5% reduction] and “let the market come back where it needs to be.”

“As an industry, we need to be a little cautious not get too ahead of ourselves with expensive financing just to close a transaction and keep our development teams working,” he suggested.

Tarpey also thinks the brands need to step up their game, as well, and provide guests what they deserve. “I think they’re going to start having real problems. I don’t think we can rely on the COVID boom anymore and we have to get back to the norm of providing services and value… If brands don’t start fulfilling their promises, they’re going to start losing a lot of steam.”