Search For Value-Add Hotels Is RevPAR For The Course For Noble
It may be developing Marriott's first-ever AC Hotels/Moxy dual-branded project, but an executive with Atlanta-based Noble Investment Group said the focus for this year is buying up more value-add hotels.
“Right now, my focus is really on acquisition,” said Ben Brunt, principal with Noble, one of the country's larger hospitality owners and investors with more than $3B invested in hotels. Noble is investing with a $270M fund, divided between new hotel developments and value-add investments.
Brunt said Noble has been hunting for hotels where it can increase room rates and stays through operational improvements or capital expenditures and rebranding hotels with new flags. It is a strategy that has worked well for Noble since the Great Recession, when the hospitality industry took an especially hard hit.
“There's not as much real distress today like there was from 2009 to 2013, and perhaps even a little bit into 2014,” Brunt said.
Noble sees investment opportunities in buying hotels with premium flags where the current owners have not infused the property with any significant capital investment.
“Some owners just don't want to put the capital in, or don't have the capital to put in,” he said. "That always creates some opportunity."
A recent JLL hotel report broke down buying opportunities in this market, predicting that transactions in 2017 will be more driven by funds “reaching the end of their hold period and the subsequent restructuring of portfolios, rather than high-income growth.”
The report expects $60B in hotel transactions worldwide this year, on par with last year's performance.
“In 2017, the strongest performers will be secondary markets along with West Coast markets and Washington, DC,” JLL officials state in the report.
Teague Hunter, president of Atlanta-based Hunter Hotel Advisors, said value-add is harder to find as fundamentals with the hospitality industry have steadily improved. That rising hotel performance across the U.S. could mask mistakes by hotel operators, Hunter said.
RevPAR increased for 84 consecutive months, with a 1.2% year-over-year climb in February, according to hospitality industry data service STR. But that is also the weakest monthly jump since 2010, in part because supply has outstripped hotel room demand.
“If you had RevPAR growth for that long, everybody's growing,” Hunter said. "A rising tide raises all ships. By that nature, there is no distress."
And he thinks the market could be at a peak, especially with interest rates creeping upwards. The question that no one can answer at the moment: How long will the market ride that crest?
“It doesn't mean we're going to fall tomorrow. Nobody feels that. And so far its all geopolitical based, both the optimism and the fear,” Hunter said. “But if [President Donald Trump] doesn't get stuff passed or we go into World War III, then it could collapse.”
Noble just broke ground on the first-ever Marriott dual-branded AC Hotels and Moxy under one roof. The $70M project, in the heart of Midtown Atlanta next to the Four Seasons, will include 133 rooms for the AC brand and 155 rooms for the Moxy brand, with entrances for each on separate streets.
The project fits what Noble looks for in ground-up development deals, and is particularly appealing for its Midtown location, Brunt said. New jobs moving into Midtown should increase hotel demand. Very little new supply has come online in either Midtown or Buckhead this cycle as available parcels have mainly been gobbled up by multifamily developers, Brunt said.
Other new hotels in Noble's pipeline include a Homewood Suites in Minneapolis, an Autograph Collection-braded hotel on the campus of North Carolina State University and a Staybridge/EVEN dual-branded hotel in Downtown Seattle, which will open next year.