NORWALK, CT— With some $400- million in capital earmarked for investments in each of the next three to five years, HEI Hospitality, taking its original Hospitality Equity Investors moniker quite literally, is determined to become a pre-eminent firm for investors. Right now, HEI is in a growth mode, with the clearly defined objective of owning and operating 200- to 600-room, nationally branded hotels in the top 50 markets in the U.S., according to Chairman and CEO Gary Mendell. Much of the company’s liquidity comes as the result of the formation of HEI Hospitality Fund earlier this year. The $275 million, fully discretionary fund already has directly led to the acquisition of several hotels and changed the dynamics of the company. “Prior to that we were an operator, it’s a big transition for us. We have full discretion on investments,” said Mendell, who estimated the fund gives HEI some $800 million in buying power. He also noted that in 2004, the company was the leading active private buyer of hotels, a role it plans to accelerate in 2005. Second Chance The company was originally created in 1985, but the firm’s management opted to dispose of its assets in 1996. While market conditions played a role in its exiting the business, according to Mendell, he believes the conditions are ideal now for further growth. In fact, the company, which retrenched in 2002, already has built a portfolio of 25 hotels. If Mendell and the three other founding members— his brother Steve Mendell, executive vp, acquisitions and development; Dave McCaslin, president of management subsidiary Merritt Hospitality; and HVS International president Steve Rushmore— have proven one thing, it’s that their timing is pretty good. “In 2002, we reformed the company. I saw the recession in 2001 and began tracking the industry, and decided it was a good time to reinvent the company…We were one of the first to recognize the beginning of an investment cycle,” said Mendell, who further explained his foresight into selling its previous portfolio of more than 20 properties, 10 of which were sold to Starwood Hotels & Resorts, while the others were one-offs. “In 1996 it was clear. I certainly didn’t have a crystal ball to say the industry was going to have the severe drop it did, but prices were in excess of where I thought they should be. It made sense to be a seller, not a buyer.” The company got restarted by buying two hotels. The Hilton Orlando/Altamonte Springs was acquired in a joint venture with Prudential for $24 million in August of 2002. The Holiday Inn in Boca was purchased for $11 million in October by principals of HEI, in addition to other private individual investors. In 2003, the company also acquired the 205-room Sheraton Crystal City in Arlington, VA, in a joint venture with Prudential Real Estate Investors. In July 2003, HEI partnered with Olympus Real Estate Partners, and Rockwood Capital Real Estate Partners to acquire 11 upscale properties from Starwood, followed shortly by the additional purchase of the Hilton Novi in Detroit, MI, by HEI and Prudential Real Estate Investors. The $300 million, multi-property portfolio consisted of the Sheraton Buckhead, Atlanta; Sheraton Chicago Northwest, Arlington Heights, IL; Sheraton College Park, Beltsville, MD; Sheraton Danbury, Danbury, CT; Sheraton Ferncroft, Danvers, MA; Sheraton Norfolk, Norfolk, VA; Westin Southfield, Southfield, MI; Westin Stamford, Stamford, CT; Hilton Sonoma County, Santa Rosa, CA; Residence Inn Tyson’s Corner, Vienna, VA; and Wayfarer Inn, Bedford, NH. HEI sold the Residence Inn Tyson’s Corner and the Wayfarer Inn immediately following the transaction. Mendell offered this analogy on the suddenly large lineup of hotel properties in its coffers. “In 2002 we put our toe in the water; in 2003 we jumped in,” he said. Adding More In early 2004, the company acquired five more hotels. In a joint investment fund managed by Greenfield Partners, LLC, a privately owne