TMGOC-Lexima deal gains momentum

CHARLESTON, South Carolina, and BOCA RATON, Florida — Backed by a billion dollars in investments, private equity firm TMGOC Ventures recently opened its wallet to take a 50% stake in Lexima Lodging LLC to help raise the national profile of the Wichita, Kansas-based firm as it pursues more third-party management agreements.

According to Glenn Alba, TMGOC’s co-founder and managing partner, the developer’s strategic play in Q1 has set the stage for a long-term symbiotic partnership expected to benefit both firms’ portfolios.

“Part of our decision matrix was we want to work with people that we know and trust, and they absolutely fit that mold,” Alba said.

And like most “overnight” moves, the deal had been germinating for some two years, with Alba and Sunju Patel, also a TMGOC co-founder and managing partner, exploring ways to collaborate with Lexima’s CEO John Cantele, COO David Emery and CFO Kay Auer.

TMGOC Ventures' Glenn Alba

Alba noted like many conversations around potential, what started as a discussion about a single transaction grew to consider multiple agreements until the subject of TMGOC’s investment into Lexima was on the table. The objective, he said, was to help Lexima grow and as a confidence-booster, “would contribute some of our assets relative to the direct management of those.”

The two firms already had been chasing a few acquisition deals together in which Lexima would have assumed management of the hotel assets if and when they were secured. “They had been partnering with us to do the underwriting, to look at the transactions. We were making offers based on that and attempting to acquire them with the intention of installing Lexima as third-party managers at that point,” Alba said.

“In addition, we had been hiring them for some ad hoc additional asset-management services to help us with some of the existing assets that we had under other third-party managers at that point,” he said.

Lexima is now fully installed in five TMGOC assets and two more—the 148-key Marriott Courtyard in Charlotte, North Carolina, and the 136-key Aloft Charleston Airport in Charleston, South Carolina—are scheduled to transition to its management on June 1. “A couple more” are slated to follow later in the summer, Alba said.

TMGOC currently has 15 operating assets in 13 markets and seven under development and construction for an overall key count of 2,945 rooms.

Other projects that will come under Lexima’s management include the 124-key Jacksonville Airport Extended Stay America, TMGOC’s first ground-up development in the extended-stay space that is slated to break ground within a month. “This is sort of a beta test,” Alba said. “We’re going to go and work on this one and continue to see if this makes sense for what we like to do and what our investors are looking for and perhaps embark on a greater development strategy in that space.”

Also moving forward under Lexima is the 208-key Moxy Charlotte Uptown, which recently topped off in the city’s Entertainment District and is expected to open in February 2025. It’s the first Moxy in North Carolina.

Lexima has been managing the 131-key Moxy Charleston Downtown and the 180-key Holiday Inn and Suites in Boca Raton.

Not a captive manager

For a variety of reasons, Alba noted not every TMGOC hotel asset would be migrating to Lexima, the goal instead being to draw attention from other owners and investors to the company.

Toward this, Lexima recently inked a third-party management contract outside TMGOC for the 104-key Waterfront Homewood Suites in Wichita.

One criticism of the management company industry is its growth just for growth’s sake because scale—for whatever reason—seems to be the end-all, be-all.

Glenn Alba

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“They’re not a captive management company by any stretch of the imagination,” Alba said. “They are a fully independent management company that we are just helping to seed with some assets and some capital and, obviously, some introductions.”

The executive expressed no qualms about Lexima’s ability to absorb and manage TMGOC’s hotel assets. “It’s been a very seamless transition thus far and we expect that to continue… Their knowledge of the underlying assets by virtue of the fact that they were helping us asset manage in the first place was instrumental in already knowing the key players at the property, knowing the competitors in the marketplace, etc. So, they could step in and sort of turn on the system day one and be hitting the ground running,” he said.

Alba stressed from TMGOC’s perspective, Lexima’s advancement is not simply growth for growth’s sake. “You want to be partnered with groups where you can see a long runway, but you also have an alignment of interests and vision… We think that the right amount of scale in the right amount of time is where we’re trying to direct Lexima and build around relationships where that growth can happen organically and over time. It doesn’t necessarily mean if somebody has a 10-hotel portfolio that all 10 of those need to come over. It’s sort of: ‘Hey, give Lexima a shot on one or two. I think you’re going to find that they’re going to be outperforming your other managers and may ultimately be what you want to move to on other assets that already are in your existing portfolio or would be for future acquisition targets,’” Alba said.

Balance sheet support

While he did not disclose the amount of TMGOC’s capital infusion into Lexima, Alba indicated the most significant aspect of the stake has “allowed for our balance sheet to help supplement theirs.” For example, that balance sheet is being supported by hiring positions in advance of need, such as with sales and revenue management associates or allowing for greater dispersion of regional vice presidents of operations.

“One of the things we found challenging with our existing relationships was just not having the right amount of ‘boots-on-the-ground’ human capital available to really be visiting and touching the assets on a consistent basis,” Alba said. “Obviously, the GMs are always the captains of the ship at the most local level but really where this game is won and lost, in our mind, is the direct oversight and a regional presence.”

When the Lexima deal first came to light, Alba suggested a portfolio composed of 50 to 70 hotels would constitute a proper sizing for the management company. “In my general opinion, and I think Sunju shares the same, is that as you start getting beyond [that number] it starts getting to a point where you’re not able to connect with] every owner as frequently as you would otherwise need to or should be doing,” Alba said. “One criticism of the management company industry is its growth just for growth’s sake because scale—for whatever reason—seems to be the end-all, be-all. We don’t necessarily believe that delivers the best results for hotel owners.”

In addition to bolstering Lexima’s human capital, TMGOC also is putting a focus on IT systems to ensure properties have the right level of technology to be competitive in their respective marketplaces.

“There’s a very big amount of technological change that I foresee as coming,” Alba said. “You just sort of feel there’s a lot that’s going to be changing fairly dynamically in the next six months, 12 months, 18 months on what management companies could or should be doing in that space and it’s something that we’re exploring very deeply right now in terms of how does AI change what’s happening on the ground? How does it [affect] the ability to do a stronger and different style of data analytics? Can we do people movement tracking a little bit more like the retail shops are doing? How can that differentiate us as owners and Lexima as a manager to get a little bit deeper into understanding changes in demand and the marketplaces?

“What excites me is the area of ‘unknown’ that’s still out there that a smaller company like [Lexima], with a capital backer like us, can go and take those chances and explore and try to be a little bit more on the point of the spear to stay ahead, where larger companies, naturally, are going to have a little bit more of a difficult time being as nimble and able to react to those types of things,” Alba said.

TMGOC Ventures is building a Thompson in Charleston, South Carolina, that will be managed by Hyatt

In terms of segments, Alba indicated there’s “no doubt” Lexima has strength “from extended-stay up through compact full-service where they would be 1,000% confident to sit down with any hotel owner and tell them ‘Here’s the reasons we can do it as well, if not likely better than who you’re working with today.’”

Would they consider managing assets that are on the boutique or luxury side? “I would say that’s not on their plate today. We’re not saying that would never be the case, but that takes a little bit of a different skill set, a little bit different personnel in what they’re experienced in up to this point,” Alba said.

TMGOC’s growth

That said, Alba noted there are other projects where Lexima will not be managing. “We’re building a Thompson in Charleston that will be managed by Hyatt… We’re very close to finalizing our capital stack and then we’ll be ready to move forward. We’re shovel-ready from the construction side relative to permits and all the approvals. We’re also building a Ritz-Carlton in Savannah that’s going to be managed by Marriott. We’re actively pursuing a few other acquisitions right now that’ll be exciting if we can get them done. They’ll be a little bit more on the upscale or luxury lifestyle space that will be third-party managed but will likely be candidates for other managers that are specializing in that particular field.”

While a vested champion of Lexima’s success, the TMGOC executive sees opportunities ahead for both partners. For example, Lexima, which is getting exposure within TMGOC’s largely Southeast hotel portfolio—Florida, North Carolina, Georgia, South Carolina—has operated more in the Midwest. So, reasoned Alba, Lexima might come across deals farther west “where we want to expand—Colorado, Utah, Arizona, etc.—where we’re not yet invested. On the flip side, it’s bringing their name to owners and regional operators in [the] markets where we’re already very strong and now they have a base of operations. They have in-depth intel into these markets that they can share with other owners and hopefully [help] them with their acquisition targets.”

“Our growth is really driven more by the opportunistic nature of what we’re trying to find to buy and not driven by trying to grow the management arm at Lexima necessarily, but hopefully they can be matching up very nicely, but they very well may not. There may be a significant number of acquisitions that TMGOC makes that [do] not involve Lexima and vice versa. We’re hoping they sign a lot of management contracts that are not TMGOC assets,” Alba said.