Investment

Limestone Capital Q&A

Benjamin Habbel, managing partner and co-founder, Limestone Capital, talks to us about the fund’s investment plans.

Has the possibility of a vaccine cut the likelihood of distressed opportunities?

“I don’t think that the arrival of the vaccine takes away the opportunity whatsoever, if anything it encourages investors to take chances now that there’s a small light at the end of the tunnel. We had factored in from day one that there would be many treatments. If sellers want to sell they will sell and those who can hold will hold.

Are you seeing distress coming into the market?

“Every day. There are a lot of reasons why companies or projects become distressed, the ones we try to focus on are properties that have very robust, very strong real estate value but, for whatever reason, were mispositioned in the market, were not run correctly, or managed for the right purpose. They have been positioned away from demand, or had a lack of investment over a long period of time so that demand fell away. All of these shortcomings can come together very quickly.

“For those specific opportunities, where something hasn’t been invested in for 15 years, with an audience which will shrink over the next two years, so you’re not seeing the revenues you had anticipated, that’s where I think the market will be looking. They tend to be family-owned assets or small businesses, small funds that missed the opportunity to position these correctly. Those opportunities, especially in southern Europe, are vast.

How can you compete effectively when there is so much demand for deals?

“We’re a group of four entrepreneurs that have built a wide range of businesses before, from tech to financial services, in various countries, we know how to build a business, what you have to do and when. We are extremely focused as a fund; we go into a market and we build an amazing team and we are building local relationships and we become embedded in that market. We won’t even look opportunities not on our focus list.

“We move there, we put staff there, we look at a lot of properties - I must have looked at 60 buildings in Lisbon. Slowly but surely you become an expert and then you can deploy capital. You can’t expect to come into a market straight away.

“For every good deal out there there are four to five bidders and the way that we positioned ourselves from the start is that there’s a segment in the market that’s large hotels but small real estate transactions, so 80 to 100 rooms, properties which have large public spaces which allow for significant F&B.

“If you run the numbers as a cookie-cutter fund, you might find that the property is too small, you’re not deploying enough capital, it’s too much work, it’s too much public space. In those type of transactions we don’t compete so much with bigger, global multibillion dollar funds. These type of properties tend to be too large for the local hotelier and this segment is where we’re looking and where we can differentiate ourselves. We’re fast, we’re partner run, we’re essentially a group of family offices which decided to invest together. We’re principal driven so we can make very fast decisions.

“We are looking to create profitable, compelling hotels with a F&B component, potentially residences, and we will do multiple transactions in this vehicle - between five to six transactions in the next two years. We approach them case by case, we have an operating company in house, we also partner with restauranteurs, with a design team, with local entrepreneurs. We are trying to build a community of talent with every single asset to make sure it’s authentic and unique product. We’re not a cookie-cutter brand.”

How can you distribute without the platform of a brand?

“The reality is that the direct booking contribution from the brands is not impressive. Unless you have to take groups, or MICE business that might be a different story. We’re 50 to 100 rooms in a really defined market, to a segment we call ethos explorers, looking for authentic, rich travel experience. We can, in a very focused way, with targeted marketing, attract this market. So we partner with direct distribution platforms and then use social media, word of mouth. I can guarantee that our direct contribution is higher than a third-party, franchise brand.”