HOUSTON, TX—When queried about growth, hoteliers often are eager to prognosticate about where they’ll be in “x” number of years. Unfortunately, for many, those predictions never come to fruition. Fortunately, for Brian Stage, he’s not among that group.
In 2010, six months into his new job as Wedge Hotel Corp.’s president, Stage was looking at a future for the company that included pushing to double—if not triple—its portfolio over the next several years. Two years later, the industry veteran has nailed the first goal, doubling Wedge’s holdings in a two-part deal with the acquisition last month of a portfolio of Hilton Worldwide products.
“We finally accomplished what I set out to do, at least in terms of acquiring some first-class assets. I would have hoped that we could have done it sooner, but these things take time,” said Stage, noting discussions around the on-market hotels actually started in May 2011
“These things” are a 104-room Hilton Garden Inn in Huntsville, AL; another 112-room HGI in Winston Salem, NC; and an 88-unit Hampton Inn and Suites in Athens, AL, all part of a larger portfolio sell-off by Kana Hotel Group, as well
as a one-off deal from Kana of a 100-room Hilton Garden Inn in Odessa, TX. Kana will retain management of the properties.
The group adds to Wedge’s other holdings, which include four branded properties that it wholly owns and operates: the 281-room Sheraton Suites, Houston, TX; the 180-room Wyndham Boston Chelsea Hotel; the 161-room Marriott Courtyard, Shelton, CT; and the 213-room Radisson Hotel and Suites, Chelmsford, MA.
Stage felt the new assets fit well into the plans the company—part of Houston, TX-based Wedge Real Estate Holdings, Inc.—has under way in terms of its strategic growth.
“We are looking for fairly well-developed assets; properties that don’t necessarily require significant repositioning or substantial operational or capital turnaround. Our investment approach is to try to identify hotels that may have some upside opportunity, but they’re not major reclamation projects. These hotels fit that definition very well,” said Stage. He added the properties are under five years old and renovation schedules are “relatively modest.”
He noted among the reasons for the lengthy transaction process on the three-hotel package was that it included financing via an assumable loan. “It was a CMBS-type of loan. Getting the financing on the property in Odessa was actually fairly straightforward and not too difficult. The numbers certainly spoke for themselves and so the underwriting was pretty simple. The best terms we could find were a similar kind of loan as to the one we were assuming, a CMBS-type financing package. It went pretty smoothly,” said Stage.
While he would not disclose the purchase prices for the hotels, Stage said, “I do believe we got our money’s worth. We didn’t make a steal. We think we’ll get good, solid and relatively dependable returns on these hotels.”
The executive acknowledged the geographic mix of the portfolio is diverse, but is confident the new additions will do well in their markets.
“Our initial development strategy had been to identify relatively new or newer hotels in the upscale, select-service or focused-service category. Alabama and North Carolina weren’t necessarily front-and-center as far as our choice of destinations, but these particular properties, being very good assets in vibrant markets with very strong brand affiliation, made sense for us,” said Stage.
For example, in Alabama, the Hilton Garden Inn is located next to Redstone Arsenal, a facility for development of U.S. missile defense and space exploration technology, as well as home to the Army Aviation and Missile Command. The Hampton Inn, located about 15 miles west of Huntsville, shares many of the same revenue generators, as well as proximity to a Tennessee Valley Authority power plant that “drives a lot of demand into the market,” said Stage. Similarly, in North Carolina, the HGI is near the headquarters of Krispy Kreme Doughnuts, Inc; R.J. Reynolds American, Inc.; Wake Forest University; Forsyth Medical Center; and Hanes Mall.
“The Odessa market is on fire,” said Stage, “mainly because of the impact of oil and gas exploration and development in the Permian Basin. It’s a market that has endured booms and busts over the years. Our parent company is in the oil and gas industry and so the experts in our group have said: ‘We think this is going to be a relatively long-running boom given the country’s focus on becoming energy independent.’ So, for us, this was an opportunity to get into that market,” said Stage.
None of the properties was distressed or underperforming. “These are solid performers. They’ve had good results, strong market share and there’s the expectation the underlying markets are going to continue to be relatively robust. And no reason to believe Kana’s operation won’t continue to result in better-than-fair-market-share results,” he said.
Having just come off the four hotel deals, Stage said currently there is nothing in the Wedge pipeline, but he and his team are revving up to be on the hunt for more properties. “We had our plate full doing the research and preparing to acquire these hotels, and now with the acquisitions accomplished, I’m going to try and reload,” said Stage. He said working again with Kana Hotel Group was a possibility, as well as working with similar operators and developers.
“Our company is a private-equity investor and operator; emphasis on investor,” said Stage, noting that when it comes to approaching opportunities, “We just really strive to avoid doing deals for the sake of doing deals. Our entire system is set up to make sure we pick and vet the investments we make as carefully as we can.”