When describing Waramaug Hospitality, founder and Chairman Paul Nussbaum uses terms such as “nimble, opportunistic, hands-on and bottom-line focused.” Generally speaking, these are terms associated with smaller, entrepreneurial types of companies.
While such a description might still apply, the Tampa-based private investment group’s portfolio of properties, as well as its platform for growth, is by no means small. In fact, for the company that was named after a lake in Washington, CT, near Nussbaum’s former home, it’s been relatively smooth sailing since its inception in 2011.
In addition to some 30 properties, the Waramaug Hospitality umbrella includes a dedicated select-service platform known as Waramaug LS Hotels, LLC—which currently houses 21 properties—as well as Waramaug Hospitality Asset Management, or WHAM as the company commonly refers to it.
Nussbaum was asked if the company’s rapid expansion has exceeded the expectations of its principals. “I don’t think we had a specific vision as to what we would do. We knew that we would try to be nimble and opportunistic. With our first key relationship, which was with Varde Partners [Inc.], we envisioned an agreement to have up to $250 million of capital available to us, so we certainly didn’t think we were just going to buy a couple of hotels. To some extent, we felt the marketplace would tell us what we were going to do and, in large measure, that is what has happened,” he said.
Nussbaum further added, “Our portfolio growth has primarily, but not exclusively, been tied to our acquisition strategy of finding assets that were in need of substantial capital investment,” he said.
Waramaug has already closed on eight acquisitions thus far in 2015, and had three more deals under contract as of press time, according to Nussbaum, who noted the company could potentially add as many as a half-dozen properties through the remainder of the year. While he touted its growth in terms of hotel rooms, Nussbaum was quick to point out that’s not necessarily the end game for Waramaug.
“In terms of measuring our success, it’s nice to be able to look at the growth we’ve had from literally a start-up less than four years ago to now having 5,000-plus rooms. It’s wonderful, but that’s not how we measure it. We measure it by whether we’re making money,” he said.
Making money is also the measurement that is of importance to potential investors. Nussbaum acknowledged that, as Waramaug has grown and put together a solid track record, it has garnered additional interest from institutional investors. In addition to the company’s ongoing relationship with Varde Partners, it has partnered with two other Connecticut-based investors, Building and Land Technology and Contrarian Capital Management. As a result, Nussbaum insisted, “We certainly have significant dry powder available to us that we expect to deploy.”
When it comes to deploying capital, the company has taken a different approach than many of its competitors, with less of a leaning toward major urban markets. While Nussbaum noted Waramaug has had success in locations such as Orlando, FL, and Phoenix, those are exceptions rather than the rule. “We made a very conscious decision that we would be open to, if not focused on, secondary and tertiary markets. We felt there was less capital that was attracted to those areas,” said Nussbaum.
And, while the competition for assets has increased dramatically, he said it hasn’t deterred the company. “There’s no question that it’s a more competitive landscape than it was, say, three years ago. A lot of capital came into this area, not only on the select-service side, but also on the full-service side. For us, we’ve been able to continue, particularly on the select-service side, to find deals that have been appealing,” he said, adding the company is helped by the fact it doesn’t have to worry about accretion and quarterly results, as many public companies do.
This spring, Waramaug acquired the Holiday Inn Express & Suites-Tampa-USF-Busch Gardens in Florida, as well as the Holiday Inn Express & Suites Greenville Airport in South Carolina. Meanwhile, in May, the company acquired six Fairfield Inn hotels in a portfolio deal in the New England area.
Notwithstanding the aforementioned deal, Waramaug has been primarily executing one-off acquisitions as opposed to portfolio deals. Nussbaum emphasized that strategy helps the company maintain its focus, and he elaborated on the decision to build the company primarily through single-asset deals.
“Our thinking is more capital driven. There are people with capital who wanted to make purchases where they could write checks for $50 million or $100 million. We were never going to be competitive with those people, and we didn’t try to be. We were willing to make up for that by doing a lot of hard work and transforming assets,” he said.
Transforming assets has been an essential part of the company’s strategy as well, which is where WHAM comes in. Nussbaum talked about how the asset-management arm has helped spur the company’s growth. “We were committed to rolling up our sleeves and totally transforming, where necessary, the assets that we bought. The second underpinning was that we felt what we could bring was hands-on, daily, very focused asset management. Our team is comprised of people I worked with throughout my hospitality career, and we felt we really had the ability to bring some strength in that area,” he said.
That team is led by Jay Litt, EVP, WHAM, who worked together with Nussbaum in the ’90s when the two were with Patriot American Hospitality, Inc., a paired-share REIT which owned the Wyndham, Grand Bay, Malmaison, Summerfield and Clubhouse Inn proprietary brands. The company asset-manages strictly for its own portfolio of properties and, while it may consider third-party asset management in the future, Nussbaum noted, “Having bought so many properties in need of significant PIPs and deep turnarounds, there’s plenty to do in our portfolio.”
Litt detailed how the company has approached capital expenditures and enhancing its portfolio. “During the past four years, we have spent more than $100 million in renovations and completed them on time and on budget. Our results speak to our ability to guide purchasing and design groups to look at the entire property, not just the PIP component,” he said.
Litt further elaborated on what he sees as some of the strengths of WHAM. “The focus is clear: ownership financial goals. Financial statements are analyzed as such with these goals in mind. Operational results are reviewed not so much on what has happened, but rather what can be changed to create desired results in the future. Having a background in operations provides us a unique advantage in the world of asset management. Accurate financial reporting to ownership is a must and this, with our focus on results, has proven to be a very effective strategy,” he said.
The asset-management team also works closely with mega management company Interstate Hotels & Resorts, with whom Waramaug has entered into a long-term joint venture to manage the majority of its assets. The agreement is primarily the result of relationships that Nussbaum had with a number of Interstate executives, including Leslie Ng, who is an investor in Waramaug LS Hotels as well, during his previous tenure with the company.
Nussbaum described the Arlington, VA-based company’s role within the portfolio, pointing out that WHAM handles everything related to PIPs. “It does all the things you would fully expect of an integrated, full-service management company. We also have found that it can bring certain synergies to bear in some areas,” he said.
Nussbaum touted some of the other advantages of having its hotels managed by Interstate, which has more than 450 properties in its portfolio. “It’s a close working relationship. The fact that it is broadly national in scope has been an enormous benefit to us. It has allowed us as a relatively small organization to be nationwide in our looking [for acquisitions]. The only places we have not looked have had nothing to do with its management capabilities,” he said.
When it comes to portfolio expansion, Nussbaum explained that new-builds aren’t really a key part of the strategy. “It doesn’t really fit with the institutional capital we have,” he said. He did note, however, that reflaggings are very much a part of what Waramaug does. Nussbaum noted, as an example, that the company converted a hotel in Williamsburg, VA, which had previously been a Marriott and, most recently, had no brand affiliation into a DoubleTree by Hilton. The company’s current portfolio includes brand companies such as Marriott International, Hilton Worldwide, IHG, Starwood Hotels & Resorts, Choice Hotels International and Carlson Rezidor Hotel Group.
But, while Waramaug may be looking to acquire properties, particularly on the select-service side, Nussbaum again underscored its ultimate mission is not necessarily about numbers. In fact, he noted the company’s strategy could shift a bit going forward, depending on the segment.
“Frankly, I think on the full-service side that we will likely be net sellers in 2016. A number of our assets have now matured to the point where we think an exit is proper. We are seriously looking at selling a number of our full-service assets next year. On the limited-service side, we continue to be active acquirers. That said, I think that some of our earlier purchases might well see the market either in 2016 or 2017. The nature of these funds is usually to be three- to five-year holders. They are not long-term holders,” he said.
Nussbaum, who has been in hospitality for more than 30 years, touted the strength of the leadership team at Waramaug as being instrumental in its rapid rise through the ranks of hospitality companies. In addition to himself and Litt, Craig Nussbaum—his son—was recently promoted to SVP, Waramaug Hospitality Asset Management and Waramaug LS Hotels, where he will be responsible for sourcing new select-service acquisitions, overseeing due diligence, contract review and franchising in his new role.
Other key members of the team include Paul Stern, who is a founding principal of Waramaug LS. From 1990-2000, Stern co-headed Sonnenblick Goldman Company’s lodging investment banking group. Jack Withrow—who specializes in hospitality finance, institutional equity capital and alternative investments—serves as the company’s CFO.
Nussbaum acknowledged there is a succession plan in place for Waramaug and endorsed the current personnel. “The unifying theme is these are all people I’ve known, and I have a good feel for their capabilities. Part of my vision is to allow the next generation, primarily headed by Craig and Paul, to take more and more of the helm. I think, in the next few years, we’ll see that transition,” he said.
For now, Nussbaum remains very involved in the day-to-day business. He talked about some of the changes he’s observed throughout his career and some of the messages he continues to deliver to the team. “You’ve got to keep your eye on the ball all the time. I get up a little earlier every morning so that I can read the overnight reports on the revenue lines; the segmentation in every hotel. You need to be nimble and to adjust. When I started, the words ‘Internet’ and ‘Internet opaque’ did not exist. The type of revenue management that we have to do today to be successful requires an attention to detail. I try to bring that, and I think the staff has done well in understanding that they have to be continually focused. The broader theme is to buy the hotel right and to do a PIP on time and on budget. That’s the beginning, but that’s not the end of the transaction,” he said.
For a company that got its beginnings just a few years back, the wind has clearly been at its back. As Nussbaum flatly stated, “I think that we’ve gained some attention in the industry with the things that we’re doing.”