Eagle Point Hotel Partners, Longitude° buy into emerging demand for unplugged alternatives in this high-wattage market.
BRANSON, Missouri -- For the first decade of the company’s history, the Midwest was flyover country for Eagle Point Hotel Partners (EPHP). But outreach from Springfield, Missouri-based Longitude° about a podcast in which they wanted to chat with Stephen Chan, Eagle Point’s principal and cofounder (along with long-time friend and fellow Cornell University alum Erik Warner) convinced them to touch down between the coasts—and create a blueprint for them and others to do likewise.
More hotel investors with an entrepreneurial m.o. and an affinity for independents may be heading to America’s blue roads to shop for low-risk, high-reward opportunities like EPHP/ Longitude°’s The Ozarker Lodge in Branson, Missouri.
Slated to open this summer, this former mid-tier, exterior-corridor family hotel typifies an asset class of solid but tired properties that afford new investors, niche investors and numbers-driven investors a means for achieving aggressive goals without the pressure to find and service big-ticket debt. There’s a lot of upside for a property like this that sells for under $3 million and can be repositioned for $6 million.
Chan talked to Hotel Investment Today about how agreeing to a first-time visit to Branson led to EPHP’s newest portfolio addition and changed the firm’s strategy.
Unsurprisingly, $29,000 a key represented a significant discount to replacement cost, but it also represented a springboard to upside in the market.
Stephen Chan
Hotel Investment Today (HIT): How did you find an under-the-radar opportunity like this?
Stephen Chan (SC): I first connected with Dustin (Myers) and Jeremy (Wells) (the partners who helm Springfield, Missouri-based hospitality branding and design experience company, Longitude°) when they reached out to invite me to do a podcast for their website after seeing my presentation at a conference. They liked what EPHP was doing to grow asset value for properties like the Calistoga Motor Lodge & Spa in California and The Anvil in Jackson, Wyoming.
Then, just over a year ago, they called and said they’d found this really interesting property (Fall Creek Inn & Suites) just off the strip in Branson. They'd never done a hotel real estate transaction, so they asked if I'd come and check it out. I’d never been to Branson. But this seemed like it might a bit of a contrarian play, so I went.
HIT: What made you say “yes” to partnering with Longitude° to do this deal?
SC: Branson had its heyday in 1990s, but it’s looking to reinvent itself. When I came to look at the property, it was my first visit to the city. I spent a few days in the market and discovered the hunting and fishing market that helps drive 10 million visitors a year. The property’s location on a creekside on the way to Table Rock Lake and Lake Taneycomo enable us to tap into that side of the Branson market.
Those fundamentals made $2.9 million for a 101-room hotel (we added an additional room during renovation) attractive. Unsurprisingly, $29,000 a key represented a significant discount to replacement cost, but it also represented a springboard to upside in the market.
Last year, the property averaged $60 - $70 ADR and occupancy was around the 55% mark. For context the landmark resorts targeting the outdoor-minded traveler, such as Big Cedar Lodge, represent the aspirational side of the comp set with ADR around $300 and occupancy in the 60% range. The Ozarker’s current comp set has ADR around $120 and occupancy between 50% and 60%.
HIT: How did you navigate rising interest rates during the deal?
SC: We knew we wanted a fixed-rate loan. We also have a recourse loan which we were able to get because of our investment base. That reduces the overall upfront cost, especially during a time when you’re just starting to ramp up and going through a massive renovation repositioning.
We also set up reserves in our account to do it. So, we moved fairly quickly in the span of about five weeks to put a loan in place. We closed it on the purchase of the property in June with all cash and then fairly quickly worked with the lender to put financing on it at an attractive fixed rate.
We realized the markets were getting tougher and tougher. We ran through the process with local lenders and it turns out it’s very competitive in the southwest Arkansas, northwest Arkansas and southwest Missouri areas. There are 15 midsize banks and they’re all very competitive with each other. We ran a process and we also secured a recourse loan via strong relationship that we have with a local investor.
We got a preferred rate from a strong bank in the area. That allowed us to reduce our financing costs and gave us good terms. They felt comfortable with their position and we felt comfortable in the cost of capital that we need to secure. So that ended up being a win-win for both sides.
HIT: What do your future plans look like in this market?
SC: Through that relationship, we are excited to look for other opportunities. It’d be a very good process because we were in an opportunity zone. And so that means that to maximize the advantage of the investment, we’ll probably hold it for 10 years. And that has a very strong appeal for our investment group.