Whitestone scales up deals amid shifting economics

COLUMBUS, Ohio — Whitestone Capital has become a more dealmaker over the past few years. When asked about the performance of the acquired assets, CEO Jay Batra has noticed some interesting trends.

Batra said the Columbus, Ohio-based company has completed 17 transactions with about 2,600 rooms for around $362 million over the past three years (including the 408-key Renaissance Columbus Downtown Hotel, which it purchased from the Marriott Family Trust for an undisclosed amount last week).

Jay Batra

As he looks at the company’s portfolio today, Batra would categorize the assets into three different segments.

The first would be the assets the company owned before COVID, and their performance has held up reasonably well. A second category would be transactions conducted in the latter half of 2024, and since then their performance has also been positive.

Then Batra said there’s the performance story for the third category of assets (transactions that occurred from 2021 to the early part of 2024). “That part of the portfolio has struggled a little bit, generally speaking, in the last couple of years,” he said.

The struggle isn’t really about anything his company has done wrong operations-wise, but more about the expectations of the industry when the deals were underwritten, and especially about the surging inflationary and labor costs for the PIPs those properties required.

We underwrote the PIPs thinking it would be one number. Well, when we put the hammer on the properties, we realized this is going to cost extraordinarily more. This is north of seven figures more than what we were expecting.

Jay Batra

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“In 2021-23, we really, as an industry, had no clue what was going to happen. We were optimistic that things would return to 2019 levels at some point. Well, that hasn't quite happened,” he said. “Obviously, nobody knew what impact inflation was going to have and how it was going to trickle down to every line item on our P&L, and that's had a big impact.”

Batra said that before COVID, the property's basis spoke for itself, but things changed dramatically after that, and because of that, that segment of properties has not fared as well.

“We underwrote the PIPs thinking it would be one number,” he said. “Well, when we put the hammer on the properties, we realized this is going to cost extraordinarily more. This is north of seven figures more than what we were expecting.”

Those PIPs were more expensive than expected primarily because of supply chain issues, which changed the basis under which the properties were underwritten, according to Chuck Groger, chief revenue officer at Whitestone, especially given how those properties are performing in their markets now compared to previous expectations.

“It really changed the basis for the properties because of the timing that we would have expected it to have come out and start being able to compete in a premium position in their markets, those are just starting to happen now,” he said.

Because many of those properties are now moving into that premium position, Whitestone has much more optimism for 2026, Groger said.

Launching Soartress

Whitestone Capital, a division of Whitestone Companies, has owned hospitality assets for about 20 years. It currently has 26 hospitality assets with over 4,000 rooms in 14 states, all in the Marriott and Hilton families.

While the company is based in Ohio and owns two full-service assets in Columbus, its portfolio is spread geographically across the U.S., as far south as Florida and Georgia, as far west as Colorado and New Mexico, as far north as Minnesota and Wisconsin and as far east as Pennsylvania and New Jersey. The company is funded by a private family office with a small investor base in Ohio and neighboring states.

Chuck Groger

Last October, Whitestone launched Soartress Hospitality, a management company it owns that operates 13 of its properties. (Crescent Hotels & Resorts will manage the Renaissance and Westin in Columbus, while Shaner Hotel Group manages Whitestone's other properties.)

Groger said the Soartress launch wasn’t just about rebranding. “It came with some newer personnel in that area, too,” he said. “As rapidly as we're growing right now, there'll be more opportunities for that division to take management contracts from the parent company, but we will also use our other third-party partners as well, depending upon geography, type of property and who has the best tools for that particular asset.”

Inside the Renaissance deal

Batra said Whitestone has been in conversations with the Marriott Family Trust for close to a year regarding the property (it took longer because Marriott management was initially encumbered in the deal) and entered into a formal purchase and sale agreement in the fall. The deal also included a 20-year contract with Marriott to keep it a Renaissance hotel.

There’s also a heavy PIP effort needed on the back end for the hotel.

Whitestone's deal for the Renaissance Hotel in Columbus, Ohio includes a 20-year agreement with Marriott.

Groger said Whitestone had a home-field advantage in understanding the Columbus market that helped the deal come together.

“Because this is in our backyard, we feel very confident in the market, and know the market extremely well,” he said. “With that, we felt stronger about where the market would be going, then perhaps somebody who was not in the market.”

Batra also anticipates synergies with the Westin property that is less than a mile away.

Pipeline and growth

While growth will continue to be the story for Whitestone, Batra said he doesn’t have any specific numbers in mind. 

“Any number is a bit of a fiction,” he said. “It's more about the quality of assets. It's more about the ROI aspect of the equation… It's a lot about what we're bringing into the family from a quality aspect.”

Whitestone has the typical hold time of five to seven years, Groger said (though the Renaissance and Westin in Columbus will be longer holds).

“The nice thing about how we are designed is that there's no external pressure for us to have to make that decision,” he said. “We do it when it makes the most sense for the investors in that process.”

One can make a lot of mistakes, in this environment, by picking up non-strategic assets... There's a lot more in the underwriting that needs to go in today than ever in the past, because it's such a dynamic, changing circumstance.

Jay Batra

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Groger said most of Whitestone’s growth will come from asset purchases and repositioning, driven by changes in management, brand, or capital structure. He said he anticipates adding three to four holdings on the lower end or five to six on the upper end, which has been the company’s norm the past few years.

Whitestone is also doing selective new builds, but it’s strategic in that thinking as well (think AC or Tempo hotels in dense urban areas). Groger said the company is expecting to announce a new-build project in Virginia in the next few months.

“Our eye in that environment is in the lifestyle brands,” he said. “Those, by themselves, require you to be in certain areas of the market and the city and those are usually high barriers to entry locations anyhow.”

For a new build to make sense, it has to be a “slam dunk” of a deal, Batra said.

“If it’s not, it probably doesn’t make sense,” he said. “For us, we have to make sure that 99% of boxes are being checked before we say yes to a new build.”

Current deal environment

Does Batra think it’s easier to make deals than it was a year ago? He said yes, adding that the market still has a long way to go versus pre-COVID levels.

“If you talk about the underwriting, it’s still very flaky. It’s still very sparse out there in terms of what works and what doesn’t,” he said. “Inflation is still very much of a factor. There’s still a lot of skepticism in the market when it comes to, when it comes to a large part of the underwriting.”

That means mistakes can easily be made, Batra said.

“One can make a lot of mistakes, in this environment, by picking up non-strategic assets,” he said. “One can find themselves on the wrong side of the fence pretty quickly. There’s a lot more in the underwriting that needs to go in today than ever in the past, because it's such a dynamic, changing circumstance.”

Batra said much of the change in the deal environment is on the seller's side.

“Sellers are realizing more so there's no value that remains for them holding on to a toxic asset that’s doing nothing, and there’s no sense in trying to hold on to a liability when it’s not going to yield,” he said.