For Dreamscape, growth isn’t aspirational

DALLAS — As Dreamscape Hospitality hits its first anniversary, rapid growth in the present and the future is the story for the third-party management firm. The company added 22 properties in its first year, with 40 more in its pipeline, which it expects to grow over the next year.

While organic growth is the main path for Dreamscape, Adam Patenaude, president of the Dallas-based company, isn’t ruling any other paths either. That includes working themselves out of a job, which he actually sees as flattering.

“We talk about working ourselves out of a job because our results are so good that an owner is able to exit at a better multiple than they originally intended. That is one of the highest forms of flattery,” Patenaude said. “Although we may lose a hotel because it sells, it’ll repay itself tenfold by the job we did and the reputation we build. Word travels. It’s all about results and relationships.”

That means Dreamscape, which was funded as a small partnership for the startup that is now in the black, will continue to grow organically or through M&A, Patenaude said.

I wouldn’t rule out any strategic M&A for us in the next year or two. But it’s got to be smart. It’s got to be strategic.

Adam Patenaude

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“There’s a growing lane out there of smaller owner-operators that want to shift their focus from the grind of day-to-day operations and focus on the development side. So, that’s an angle that we’ll continue to focus on,” he said. “Then, I wouldn’t rule out any strategic M&A for us in the next year or two. But it has to be smart. It has to be strategic.

“We’re looking for smart geographical marriages. Whether it’s [companies] that make sense and have teams that are specialized in verticals that we may not be in currently, I wouldn’t rule that out.”

Dreamscape was founded two years ago when Patenaude met Eric Birnbaum (founder and CEO) in New York City.

“We got to discussing some of the gaps in the third-party management space and traded business plans and ideas back and forth over the course of a few months,” Patenaude said. “We finally came to the realization, after many conversations, that we were very much aligned in what we thought an operating company could be and could do… It was really one of those conversations over at cocktail napkin to start and it evolved from there.”

What is the niche that they wanted Dreamscape to fill?

“One of the one things that that we really agreed on, and that we’re really hanging our hat on and making a part of our DNA as we continue to grow, is we really want to be best-in-class operators, super transparent and trustworthy,” Patenaude said. “We really felt like if we could do that, then growth in the space is really limitless.”

Inside the portfolio

While Dreamscape is currently a pure third-party management business, Patenaude said the company has the balance sheet to make “sliver investments on the equity side” for future management deals as it makes sense.

The company’s portfolio is a mix of select- and full-service hotels (roughly 60-40 on the select-service side), with more than 13 brands and five independent lifestyle properties. While its current portfolio is heavily weighted in the southern U.S., that will change as it adds to its pipeline. Dreamscape already has a few resorts in its portfolio domestically and is also interested in growing in the Caribbean.

Dreamscape has 22 properties, including independent boutique hotels like The Blackbird in New Orleans.

“The last I checked, we’ll have probably six or seven hotels coming aboard in the next 90 days,” Patenaude said. “The only difference is we’re spreading out throughout the country.”

Dreamscape currently has owners with multiple hotels in its portfolio and Patenaude said there is plenty of room to grow with those owners. The company also wants to add properties from REITs, private equity, family offices or high-net-worth individuals.

“It’s really a mixed bag. We can serve just about any ownership type out there,” he said.

We are market-share fanatics… Ninety percent of our portfolio through March is growing market share. From a rate standpoint, 50% of our portfolio right now is ranked number one or number two in absolute ADR, and half of our portfolio is growing rate index.

Adam Patenaude

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Patenaude said despite a potential inflationary environment, the company has so far been able to keep operating costs from growing too rapidly. One thing that is growing is market share.

“From a cultural standpoint, we are market-share fanatics… Ninety percent of our portfolio through March is growing market share,” he said. “From a rate standpoint, 50% of our portfolio right now is ranked number one or number two in absolute ADR, and half of our portfolio is growing rate index.”

Dreamscape is also having success growing occupancy.

“All but one of our hotels is growing occupancy index and 75% of those are double-digit growth,” Patenaude said. “We’re really leaning into where we see as the best opportunity to drive revenue and RevPAR for owners right now, and it’s been through the occupancy vehicle so far.”

Dreamscape currently has two massive renovations at two of its bigger, full-service hotels, which is a headwind. But Patenaude said the company isn’t intimidated by PIPs.

“The PIP process doesn’t scare us away when it comes to coming in and operating. We have two large PIPs undergoing right now. We have another one that is going to come into the start of its renovation in the next 8-12 months,” he said. “From a management standpoint, we’re fully prepared to operate a hotel at any point in the cycle.”

If Dreamscape adds all of its pipeline properties, it will almost triple its size over the next year. Patenaude embraces that growth, and while he says his teams talk about future growth goals, that isn’t the main driver of success.

“I’m less concerned with the number of hotels that we get to. For us, it’s more about our mission to be the most trusted third-party operator out there by way of transparent relationships, internally and externally,” he said. “What’s important to us in that formula is we never want to lose focus of the core business… I think the sky is the limit. To me, that model is scalable at a very high level.”