While some companies are cutting their losses in the hotel industry and moving on, others see opportunity. The leaders of Avistone, a Florida-based commercial real estate investment firm that specialises in the acquisition and operation of multi-tenant, industrial properties nationwide, are in the latter group.
Calling this a good time to get involved in hospitality, the company has formed a hotel division, Avistone Hospitality, and named industry veteran Charlie Muller managing director of the division.
Richard Kent, president of Avistone, said the company’s core disciplines in the industrial market are directly applicable to the hospitality market. “In other words, we buy below replacement costs. We buy in compelling markets," he said. "We focus on making improvements, making improvements to the management, bringing in management, increasing [revenue per available room], net operating income and selling opportunistically. They're the same skill base that we already have in place and now we get to apply it to the hospitality sector.”
Richard Kent, president of Avistone, said the company’s core disciplines in the industrial market are directly applicable to the hospitality market. “In other words, we buy below replacement costs. We buy in compelling markets," he said. "We focus on making improvements, making improvements to the management, bringing in management, increasing [revenue per available room], net operating income and selling opportunistically. They're the same skill base that we already have in place and now we get to apply it to the hospitality sector.”
Seeking Investments
By creating and utilizing private equity funds, Avistone Hospitality will explore investments in limited-service, extended-stay, full-service and resort hotels throughout the United States. It is targeting property acquisitions and/or note purchases, as well as limited new development opportunities where they make sense. The company will focus on hotels at below-market-replacement cost that will benefit from capital infusion, renovation, rebranding, repositioning and/or improved management and marketing capabilities.
“Avistone Hospitality will make immediate use of its existing and extensive list of hotel brokers, auction firms, owners and lenders to target investment opportunities,” Muller said. “Once acquired, we plan to improve property revenues through effective asset management practices and alignment with proven operators as we move to stabilize RevPAR, increase cash flow and eventually sell opportunistically as conditions warrant.”
According to Muller, the company reviewed more than a dozen investment opportunities in the first few weeks of operation alone, with the first deal anticipated soon.
“Avistone Hospitality gets to really rely on the investment infrastructure already in place at Avistone,” he said. “We believe we've got the bandwidth on the hotel side to grow our investment portfolio to 25-plus properties over the next three to five years, but we don't feel we're going to be capped at that level. It's just the opportunity to scale up the platform. [We’ll] really only be limited by the availability of good quality investments that match our criteria for investing.”
The number of hotel properties that are anticipated to hit the market this year as tough conditions continue will be an advantage to Avistone Hospitality, Muller said, although what the company is predicting in terms of sales has changed over the course of the pandemic.
“There was great expectation that there would be a significant amount of distress and lenders would become significant sellers either through a notes platform or taking back property in foreclosure and that there would be great discounts,” he said. “Now we still believe there will be discounts, but I think the strength of the banking markets over the last five to eight years have enabled them to be a little bit more flexible in how they're dealing with their lenders. They’re also very reluctant to be owners, given that the industry is still in somewhat of a negative cashflow performance state.
“So I don't think that the stress will be as deep as originally expected, but there still will be opportunities for investments at values discounted to pre-COVID levels. That's what we'll be focusing on.”
Muller said Avistone will be looking nationwide at primary markets but will balance the portfolio with investments in strong secondary markets or other high-growth areas that demonstrate proven demand, good job growth or business innovation. The focus will be more urban and close suburban locations rather than outer-range suburban areas.
The company normally considers a three- to five-year hold period, but Muller said that the post-pandemic recovery of the industry might warrant some flexibility on investment horizons on a deal-by-deal basis.
In terms of partners, the company is looking to work with experienced operators to set up regional success in the markets it wants to invest in, at least to start with.
“As we look at some more of the lifestyle leaning properties, some of the soft brands, some independent properties, we're then going to look to engage with a more select band of operators that have proven abilities in those spaces and not necessarily a regionally focus,” Muller said. “We think that relationships with some of these best-in-class operating companies will also benefit us by expanding our opportunities to look at investments.”
Hospitality Backgrounds
This hospitality division isn’t Avistone’s first foray into the hotel industry. Before forming Avistone eight years ago, Kent had a long career in the lending and capital markets side of commercial real estate with a focus on the hospitality sector. In addition Kent, along with Avistone’s CEO Dan Culler, were the first two senior executives at online auction platform Auction.com, which now is Ten-X Commercial Real Estate.
Muller brings with him nearly four decades of hospitality expertise in operations, acquisitions, development, asset management and dispositions. He has completed more than $7.5 billion in transactions, including acquiring 75-plus hotels, developing/redeveloping 19 hotels and has overseen asset management practices for more than 200 hotels and recreational properties. Before joining Avistone, Muller held such positions as senior vice president of investments with First Hospitality, vice president of development at Omni Hotels & Resorts and executive vice-president and chief operating officer for CNL Hotels & Resorts and CNL Lifestyle Properties.
“We believe this is a very timely and logical operation to our current industrial platform,” Kent said. “We’ve been looking at this for a number of years. We never foresaw COVID, but now coming in into the post-COVID period, we just think this is a good time to be involved in hospitality.”
This article first appeared in Hotel Management.