Bunkhouse developer likes upside of Hyatt-Standard deal

FAYETTEVILLE, West Virginia – Mountain Shore Properties’ principal and CEO Stephen Wendell owns a Bunkhouse hotel, Hotel Genevieve, in Louisville, Kentucky. So, naturally, he is particularly interested in Standard International’s new deal with Hyatt Hotels Corp. as Standard took a majority stake in the Bunkhouse brand by 2017.

From 35,000 feet, he said he likes the deal. In fact, Wendell has developed five Hyatts and said he has been happy with the results and the people he has worked with. While he loves the creativity of being part of a hipster brand like Bunkhouse, he knows the firepower Hyatt brings to the table should increase the value of his asset.

In fact, Fayetteville, West Virginia-based Mountain Shore, which has developed 28 hotels since 1983 and often with partners, is targeting two more deals for Bunkhouse and Wendell said he is happy to work with Hyatt on these developments. “This is combining worlds for me and it’s really welcome news,” Wendell said. “It is just easier to finance, easier to build, and easier to do everything.”

Stephen Wendell has been running Mountain Shore Properties for 12 years

At the moment, Mountain Shore is working through the back half of a general $75 million real estate investment fund and plans to develop a soft-branded hotel with Marriott in Madison, Wisconsin, as well as potential Bunkhouse boutiques in Charleston, South Carolina, and Chattanooga, Tennessee. The group also plans to develop an independent 50-room boutique hotel in Fayetteville, West Virginia, where Wendell grew up. Wendell added that the group’s strategy was to develop maybe five Bunkhouse and by 2030 expect Standard to sell its position, happily putting their properties with a bigger brand company. But now he is going to pay franchise fees to Hyatt sooner rather than later, which he said Mountain Shore also can live with.

“I understand the value and know there is a lot of value in the early years of a development,” he said. “Paying the brand in years 14 through 20 stings a little bit because you’ve built yourself up and don’t need them as much, but you need them in the beginning. And the brand equity is certainly nice, especially when you’re capitalizing these deals and financing these deals. It’s just harder today in general, and I hope we’re going to get some relief in the next week or two weeks from The Fed as every little bit helps when you’re trying to put the capital stack together.”

While Wendell said he doesn’t yet know ‘the rules of road’ for Hyatt soft brands, he kind of knows what to expect. “I encourage them to be different,” he said. “For example, you sign a franchise agreement with them, they’re going to manage and then have the Bunkhouse design team concept it. So, it’s going to be a little bit of a hybrid from what you’re used to seeing in the soft brand world, which I think is exciting and a huge opportunity.”

Wendell also like the fact that Amar Lalvani will move to Hyatt to run their dedicated lifestyle group, taking on the role of president and creative director, overseeing the integration of the brands to be housed within the group while focusing on further growth of each lifestyle brand.

“He’s an incredible leader,” Wendell said. “He sees the playing field from all angles, and certainly much sooner than you could imagine – or maybe you thought – because he’s not the loudest voice in the room. Too often I am. It’s been a joy interacting with him. He’s incredibly smart and obviously has been in this in this business for a very long time.”

He also likes the incentive aspect of the deal with up to an additional $185 million over time going to Standard International as additional properties enter the portfolio. There are reportedly some 30 Standard deals in the pipeline.

Guest room at Hotel Genevieve in Louisville, Kentucky

“I’m excited about Amar ‘putting his money where his mouth is,’ coming to work and trying to sell more deals,” said Wendell, who also wasn’t shy about expressing his interest in a board seat. “Where I want to help is bridging the gap for them to figure out how to sell someone like me, who was a traditional select-service guy, on how to get these really good developers… We have to do a lot with a little when we build these assets. Arranging that discipline to build boutiques, and allowing the creative spirit to show through – there’s a tension there and we have a unique perspective… When we built Hotel Genevieve, from a guest perspective we wanted it to feel 4-star but built with 3-star capital. That’s the spread that we’re attempting to achieve.”

Overall, he calls the Hyatt-Standard deal a harbinger of things to come, citing Hilton, who recently acquired NoMad and Graduate brands to keep growth at the pace The Street expects. “And I think the big brands are going to learn from the past mistakes of maybe trying to force things together too quickly and assimilate their acquisitions too quickly,” Wendell added.

Ready for a rate cut

What will also be different about the Hyatt-Standard deal and other deals to come is the expected decrease in interest rates by The Fed and Chairman Jerome Powell over the next 12 months.

And quite frankly, as a real estate developer, I don’t want rates to be pushed down too far too fast because that’s when you get overcrowding and a lot of the bad deals, which doesn’t really help anybody.

Stephen Wendell

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Wendell said he wouldn’t be surprised to see a 100 bps to 125 bps decrease in rates by next spring. “I think he wants to do 50 [now]. I don’t know if he’ll do 50 because of the election and if he feels like that might look like it’s swaying it too much,” Wendell said. “He knows he can get there over time. As long as he’s going in that direction, which he is, that’s where we need to be.”

Wendell added that even a small drop in interest rates should improve deal flow. “And quite frankly, as a real estate developer, I don’t want rates to be pushed down too far too fast because that’s when you get overcrowding and a lot of the bad deals, which doesn’t really help anybody,” Wendell said.

Wendell believes if the market sees rates come down 125-150 bps in 12 months, deals will start to make much more sense. “You’re going to see acquisitions happen because there are so many funds that have been sitting on cash. It’s going to be an interesting next two years, and we’ve set up a bunch of properties that we have the land and we’re ready to go. We’ve just been waiting for this moment to go put the deal stack together.”

The next step for Mountain Shore will be to raise another fund next summer with the hopes of raising $100-125 million but willing to settle back at $75 million if that is where the appetite lies. They will also continue to partner on deals – sometime with the landowner who also contributes cash to a deal to become a 50-50 partner.

Mountain Shore Properties' last deal was done in partnership with the owners of the Rivertown Lodge in New York’s Hudson River Valley. They redeveloped an old motor lodge built in the 1920s, painstakingly converting it to 26 log cabins and 24 motel rooms, along with a Mexican restaurant that has gone on to earn a James Beard award nomination. The property opened in March 2023 and just added its event space as it starts to gain momentum.

“We’re always looking at the spread and the yield,” Wendell said. “So, hotels continue to make sense when you can get double-digit cash returns on cost, whether you’re borrowing at even 8.5% or 6.5%, which would be even better. Either way, it takes time to get there – three years. Stabilization is a real thing.”