Exclusive: TPG launches 'solutions' shop

PALM BEACH, Florida – Recognizing an opportunity to invest in stressed or distressed assets, as well as bring their operating expertise to the table to provide capital infusions and turnaround services, integrated owner-operator Procaccianti Companies has launched TPG Intrinsic Solutions (TPGIS), partnering with industry veteran developer and advisor Mark Gordon, who will serve as CEO.

Gordon exclusively told Hotel Investment Today that he expects Palm Beach, Florida-based TPGIS to take predominantly two- to three-year term preferred equity stakes typically ranging from 15% to 30% in select full-service upscale and luxury hotels and resorts that need assistance to stabilize assets. He added that TPGIS is already in discussions with five owners and would like to do as many as 10 deals in the first year.

The TPGIS platform will focus on the intrinsic physical structure and operational potential to improve performance by creating a comprehensive and customized business plan, and then oversee the execution of the plan via asset management or hotel management while simultaneously providing a creative capital solution to advance the hotel toward financial stabilization.

Typically, the industry is divided between advisors and capital providers, and obviously owners, but no one has put together the entire basket of services under one umbrella. That’s what TPG Intrinsic Solutions is all about.

Mark Gordon

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Through the Procaccianti Family of Companies, which has owned, developed, managed or financed investment real estate in over 300 cities across 42 states, TPGIS can capitalize the asset by providing creative debt, preferred equity, and equity. TPGIS will then actively work with the borrower to oversee the adherence to the business strategy. Additionally, TPGIS can provide fiduciary services, including but not limited to serving as an independent contractor, chief restructuring officer, and/or receiver/manager.

The deal came together last year when Procaccianti Companies President and CEO Jim Procaccianti met with Gordon, a long-time contemporary, and discussed the myriad opportunities with intrinsic value that TPC is presented with. The two realized an opportunity to provide solutions for some of these underperforming assets, including capital to get owners through the financing challenges that they’re experiencing.

“The ability to offer a sole source solution for hotel owners is something that I’ve never seen anyone do in the industry,” Gordon said. “Typically, the industry is divided between advisors and capital providers, and obviously owners, but no one has put together the entire basket of services under one umbrella. That’s what TPG Intrinsic Solutions is all about.”

Loan-to-stabilization model

Gordon said TPGIS wants to find hotels that have a significant amount of intrinsic value, where the owners just haven’t been able to realize that full value and already have some sort of shortfall of capital that they can come in and bridge. “So, it’s not a loan-to-own model per se – it’s really a loan to help. We want to come in, help owners recreate value, and carry them to the next financing, which may be in two to three years when the world gets to a more stable place.”

Offering an example of the type of deal TPGIS might do, Gordon cited a recent meeting with a fund that acquired a luxury urban hotel, recapitalized and rebranded. The hotel delivered 92% of top line performance in the first year, but only 15% of the proforma budget on the bottom line. The inexperienced owner is facing increasing costs, a short-term loan that is maturing and a big challenge. “We have the opportunity to work with management and brand where we have pre-existing relationship, analyze where performance has come up short, and work with ownership and the brand to correct the challenges on a short-term basis,” Gordon said. “But we can also provide an interim capital solution so that the borrower can address their lender needs and really continue to own the asset for another two to three years, which is the time we think it’ll take to regrow profitability.”

Gordon also points to TPG’s experience with mixed-use assets and other large-scale developments. In fact, he said the new firm is looking at some development deals where projects have been under construction for several years and LPs are no longer willing to fund because costs have jumped at a much higher level than they contemplated. “We can step in and provide preferred equity to finish the project and even step in as interim developer, if necessary,” he said. “We can also work with the brands because we have all these pre-existing relationships. The team can be very nimble and address the plethora of needs within the industry.”

With TPG’s relationships in the private equity world and its ability to expand upon those relationships, capital will not be a limitation to what the TPGIS can do, according to Gordon. “We’re going to be hyper-focused on finding deals that we believe in, where we can add value,” he said. “The ultimate test of our commitment to transactions will be the fact that our intention is to coinvest with our client.”