WESTPORT, CT—When the Northview Hotel Group acquired the Sanderling Resort in Duck, NC, in the Outer Banks last spring, it added a highly regarded destination resort to a portfolio that already includes a number of resorts with similar profiles in Oregon, Florida and, to a lesser degree, California. Of the nine properties in the Northview portfolio, in fact, seven fit the profile.
The Sanderling, which Northview acquired with Five Mile Capital Partners, is currently closed for extensive renovations that include the addition of seven guestrooms for a total of 95. A reopening is scheduled for May.
While seven of its nine properties are resorts, Northview’s acquisition strategy is still opportunistic, explained SVP Matt Trevenen, who is one of the firm’s four partners and is the partner responsible for acquisitions and development. Trevenen noted that the two remaining properties are the city center Sheraton Raleigh in North Carolina, another recent acquisition, and the suburban Westchester Marriott in Tarrytown, NY.
“We’re typically looking for off-market transactions where we’re the only player or deals where we have some kind of upper hand. We do get into competitive situations, however, and more times than not, it’s the lodging REITs and the private equity firms that we’re bidding against,” Trevenen said.
Yet a lot of the REITs aren’t buying into the resort markets. “Generally speaking, resorts are a more volatile investment and a riskier asset class than urban hotels,” he explained. “Consequently, we haven’t seen the REITs starting to chase a lot of these resort destinations. We think they will eventually, once the economy recovers. So right now, we
believe there’s opportunity there.”
The REITs and private equity firms are also focused right now on the top five markets in the country or the top 10 markets. “Given that focus, which are at a much lower risk profile, we think it creates opportunities in the top 11 to top 25 markets. These markets still have strong growth potential, but aren’t necessarily as attractive as the very top markets,” he noted.
Northview was founded in 2004. Since then, the firm has done about $600 million in acquisitions, many of which tend to include a major value add component. “Unlike hotel companies that are just buying cash flowing hotels in major markets, we’re really focused on being able to add value, whether through renovation or operations,” Trevenen said.
Most of the hotels in the portfolio are owned and managed. There are a couple, however, that the firm doesn’t own, but manages on behalf of a third-party. Going forward, the plan is to be strictly owned and managed.
When it comes to financing, Northview has a small in-house fund and partners with larger private equity funds such as Five Mile Capital Partners on the equity side. On the debt side, the firm goes out on a deal by deal basis and sources debt through a range of different sources.
Like most hotel ownership groups, Northview didn’t acquire many hotels during the downturn in 2009-2010. During that period, there was little consensus on an asset’s true worth.
“But even having come out of the recession, it doesn’t seem the value of assets has really stabilized. The picture is clearer than it was two years ago certainly, but there’s still a lot of uncertainty in our world,” Trevenen noted, adding that the firm isn’t taking “a very bullish stance on the economy for the next couple of years.”
Going forward, that reality has tempered the firm’s approach. “We think the business has reached a new paradigm where you have to shift your view of future performance and take that into account in your underwriting. That then comes into the pricing conversation and where you acquire hotels,” he pointed out.
“A couple of years ago, we were always looking at peak performance and thinking about when a hotel might get back to peak levels. Yet in a lot of markets we’re underwriting, it might take years and years to achieve those levels, so that analysis in many markets is no longer relevant,” he continued.
That being said, Trevenen cited an offsetting factor: the relative lack of new supply due to the lack of available construction financing in most markets. At the same time, the debt markets are “incredibly attractive” right now.
“We’ve taken advantage of that in recent months. We think that’s actually driving down cap rates and increasing values. We expect that to continue for the foreseeable future,” he said, though adding a note of caution. “That’s assuming there’s no major economic collapse, which is always the big assumption in today’s world.”
As Trevenen and his partners look to take Northview to the next level, they’re less concerned about an acquisition candidate’s industry tier or whether it’s branded or independent than they might have been a decade ago.
“The model flexes a bit depending on the deal. Given that we’re opportunistic, deciding to go ahead with an acquisition is more about being able to add value versus pinpointing one specific industry segment,” Trevenen said. Generally, however, the focus has been—and will continue to be—on the upper-upscale and luxury segments as well as upscale, limited-service.
Of Northview’s nine hotels, six are independent and three are branded. Two of the six independents, however—the Lodge at Eagle Crest and the Lodge at Running Y Ranch, both in Oregon—are part of the Holiday Inn system, but not flagged Holiday Inn. The properties, while remaining independent, get the benefit of the Holiday Inn/IHG distribution system and frequency program.
Meanwhile, at a time when more and more travelers are booking hotels online, Trevenen sees independent resorts gaining an advantage when it comes to burnishing their presence on the Internet.
“Now, more than ever, e-marketing and websites are a critical factor in booking hotels. If consumers aren’t booking online, they’re looking online first before booking. A strong presence on the Internet is just a way for an independent resort to separate itself from the competition,” he said. “With one of the major flags, it’s just not possible to do that. You have to replicate the model the brand has already established.”
Concluded Trevenen: “Unlike a branded property, where you’re pigeon holed into the brand’s template and functionality, we’ve been able to attract guests and drive organic search by creating websites with a high level of interesting content.”