Trinity's Hehir explains rationale behind Diplomat deal

Believing in its thesis to acquire big assets that appeal to both group and leisure business in smiling markets like south Florida, Honolulu-based Trinity Real Estate Investments, along with Credit Suisse Asset Management, have closed on the reported $835 million acquisition from Brookfield Properties of Hollywood, Florida’s iconic, 1,000-room oceanfront hotel, The Diplomat Beach Resort.

The buyers, who also proved deals can get done when the right partnerships align, used equity to buy the asset and are going to assume an existing CMBS debt reported at $168 million. Trinity Managing Partner, President and CEO Sean Hehir also told Hotel Investment Today on Friday that plans are in the works to sell an adjacent parcel of land where condominiums could be developed.

The new owners also want to invest in the hotel to make it more experiential for the leisure crowd. Hilton will continue to manage the property under its Curio Collection brand, but after the renovation Hehir said it plans to move into Hilton’s premium Signia by Hilton portfolio.

Sean Hehir, Trinity Investments

“We love these types of hotels, these bigger box, destination-type hotels, irreplaceable assets,” Hehir said. “And when we can see what’s happening in the group space through our Grand Lakes, Desert Ridge and Westin Maui hotels, we are seeing the upside.”

Hehir added that Trinity repositioned and succeeded with those three group-oriented assets by also making them attractive to leisure travelers with more bespoke experiences. “We’ve put in hundreds of millions of dollars between those three assets and now they are achieving record months, every month… We believe in that approach.”

At The Diplomat, plans call for focusing on the pool experience, club lounges and a beach club. “So, if you’re a leisure guest, you have a private place so you’re not bumping into conference people with badges on all the time,” Hehir quipped. “We can attract multiple market segments and we’re defining the PIP with Hilton right now.”

We also understand the irreplaceability of assets like this. Nobody’s going to build, even if they wanted to, a 1,000-room hotel in South Florida. You can’t buy 10 acres on the beach – it doesn’t exist.

Sean Hehir

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Hehir further explained that adding the Signia brands puts the asset in the consortium business, which allows it to go after high rated groups and leisure business. “We also understand the irreplaceability of assets like this,” he said. “Nobody’s going to build, even if they wanted to, a 1,000-room hotel in South Florida. You can’t buy 10 acres on the beach – it doesn’t exist. And you can’t have another 10 acres on the Intercoastal… We know how to reposition them; we’re very brand friendly; we only focus on assets that are 300 rooms and bigger; and we just know what to do to them.”

Evidently, Credit Suisse believes in Trinity’s approach as well, helping to assume the debt for The Diplomat and getting the deal across the finish line. “It was a longer process, but it takes a village to put it together,” Hehir said. “Having Brookfield as a cooperative seller, having Credit Suisse, having the CMBS lender being cooperative on the assumption process, having Hilton being incredible and wanting to get this done. We all got together and got it done.”

Hehir said the deal, one of the largest hotel acquisitions in the United States since August 2021, started to materialize in earnest in mid-2022 after a potential deal between Brookfield and Jeffrey Soffer’s Fontainebleau Development and Koch Real Estate went sideways in late 2021.

This purchase marks the $500 million Trinity GP Fund I L.P.’s eighth investment since its final closing in June 2021, representing $2.1 billion in total transaction value. The 26-year-old hospitality investment firm has invested more than $9 billion in the United States, Mexico, Europe, and Japan and Hehir added that the current fund has three more deals in the works – destination hotels with north of 300 rooms, including one that will close in the next four to six week.

Hehir said that Trinity would historically put in 5% to 10% of the equity on each deal and bring in a large private equity firm. But this fund has enabled them to do more. It’s a discretionary fund with about 70% from the City and private banks and 30% from sovereign wealth funds. “It enables us to write larger checks and go after larger opportunities,” he said. “The Diplomat is a  case in point where we’re still the GP and the operating partner.”

With this challenging capital market, Hehir said it has really forced Trinity to become creative to get deals done. “In this instance, we assumed the existing debt. In another instance, we’re going to be working with a relationship lender who we’ve done business with before and understands us and our team and our business plan. So, they’re giving us decent financing.”

Trinity also closed on the Hyatt Regency in Greenwich, Connecticut in October 2022 when there was no debt market, working with the Bank of Hawaii, who ended up providing the financing at very attractive rates that nobody else was matching, according to Hehir. “What I really learned going through COVID is that we have to be hyper-disciplined about the markets that we’re in and the types of assets. Fortunately, we were. So, these assets that we owned going through COVID really bounced back well. And we’ve continued that theme with the types of assets we’re buying now.”

In closing, Hehir through bouquets to JLL Hotels & Hospitality for the role it played in finalizing the deal, adding, “That’s my takeaway for doing transactions in this challenging environment. For lack of a better term, being in bed with the right people that you trust and work with matters and made this deal happen.”