Electra, AKA marriage still on honeymoon

WEST PALM BEACH, Florida – Two years ago, real estate private equity firm Electra America and long-stay owner-operator AKA launched a joint venture focusing on luxurious residential-style hotels offering short-term stays. Thus far, the partnership – dubbed Electra America Hospitality Group – has opened six properties as AKA Hotels in the following cities: Miami; West Palm Beach, Florida; Boston (two locales); Alexandria, Virginia; and on May 24, in New York’s NoMad neighborhood.

“We are proud to bring what we call ‘The World’s Most Livable Hotels’ to even more gateway cities through our partnership with Electra America,” said Larry Korman, CEO of AKA, a division of Korman Communities. “Electra America shares our strategic vision, and the synergistic collaboration allows AKA to evolve our portfolio by acquiring and reimagining iconic hotels at the highest expression. Additionally, our joint venture ensures we can be more opportunistic and act quickly when desirable boutique properties come on the market.”

Looking ahead, the partners want to double that number of properties in the next couple of years, and is looking at such markets as Southern California, Nashville, Austin and Denver, along with added locales in New York and Florida.

Russ Urban, CEO of Electra America Hospitality Fund I, talked to Hotel Investment Today about what each partner brings to the table, and how that’s led to them targeting what they see as an underserved niche.

Hotel Investment Today (HIT): Why did Electra see AKA as a good joint venture partner?

Russ Urban (RU): With the AKA partnership, Electra America Hospitality Group is now a powerful player in both the transient/traditional hotel category and a growing niche, the 4-star extended-stay hotel space. AKA is an excellent operator in a highly niched segment of the hospitality market that’s currently very underserved, and Electra, as a multifamily expert, brings expertise in the residential space. So, it’s a perfect marriage of two formidable real estate groups.

HIT: What separates it from more traditional hospitality real estate opportunities?

RU: What distinguishes the AKA/Electra partnership is the alignment of interests, equity investment and return rewards tied to the brand and operations. All the big brands are one-sided, receiving a royalty on top line with no risk. With AKA’s partnership, we’ve gained a great financial partner – a fifth-generation, family-owned business – willing to make a meaningful equity commitment to each deal.

HIT: How is the brand performing?

RU: When we launched two years ago, our goal was to acquire exceptionally well-located assets in gateway markets where distress or another combination of factors has created an opportunity to acquire a high-quality hotel at a significant discount – and we’ve delivered right down the fairway of the strategy thus far. We’ve acquired seven hotels in the United States since launching two years ago, helping AKA expand its footprint in cities like Manhattan and Washington D.C., where it had a property, and debut in cities like Alexandria, Boston, Miami and West Palm Beach.

HIT: What is the forecast for this type of concept as we continue coming out of COVID?

RU: The forecast is excellent. We’re entering ‘phase two’ of post-pandemic hospitality sector recovery with the blossoming of the combined leisure and corporate market named ‘bleisure.’ The hotels we’ve acquired are in high-growth gateway markets with a balance of leisure, transient and corporate business demand, and are markets that have proven resilient during different cycles and are enjoying a strong post-pandemic comeback.

HIT: What is your funding situation?

RU: We’ve deployed roughly half of the $750 million EAHG raised from investors. We are being highly selective about opportunities at the moment, so no new funding is needed quite yet.

HIT: How hard is it to find the right type of asset in right location at right price today?

RU: It’s become more challenging as debt markets are difficult and we have yet to see the right level of distress for product that meets all our criteria. However, we believe that will change over the next year as we do anticipate some distress in the near future due to debt maturities and the need for FFE investments. A lot of big hotel brands are starved of FFE capital – hotel owners might be asked to invest $40 to $50 million, which may create some distress.

HIT: What impact will more expensive debt have on ability to deploy and raise capital?

RU: Higher interest rates and the capital markets volatility makes recaps harder. This may lead to some sales in the next six to 12 months. Domestic hotel demand is starting to normalize from the post-pandemic high of 2021, but international travel is still ramping up and corporate travel is returning.

HIT: How did you wind up with two projects in Boston?

RU: We purchased two hotels in Boston over the past half year. The 190-key Kimpton Nine Zero is now Hotel AKA Boston Commons, and 225-key Loews Back Bay is now Hotel AKA Back Bay. Both were converted to AKA hotels upon closing.

Hotel AKA Boston Commons was acquired in an off-market transaction. With these two acquisitions, EAHG now owns two distinctive, very complementary luxury hotel assets in the heart of Boston’s business and tourism districts.

While Hotel AKA Boston Common appeals more to leisure travelers given its location just steps from all the major historical landmarks, Hotel AKA Back Bay tends to draw the sophisticated business traveler.

Together, the properties complement each other well and afford AKA the opportunity to capitalize on operational economies of scale. While Boston’s hotel recovery has trailed some markets, it’s just now demonstrating a strong rebound, gaining strength from the return of business and group travel.

HIT: Tell us more about the recently opened Hotel AKA Alexandria.

RU: That’s EAHG’s first major hotel transformation post-COVID, following a $40 million renovation. It is the first world-class, high-design hotel in Northern Virginia. It is also the first U.S. hotel designed by renowned Italian architect and designer Piero Lissoni.

HIT: Speaking of Lissoni, from your perspective, what implications does hiring such a ‘name’ designer have for investors? What is its impact on ROI?

RU: It is a very well-known design brand and differentiates us from the sameness that exists in the market. The Alexandria property embodies an effortless blend of modern minimalism and mid-century elements, among the charming brick-lined setting of Alexandria’s Old Town. It offers luxury on a new scale for Northern Virginia and complements the other 16 AKA hotels and hotel residences in the U.S.

The hotel offers 180 oversized luxury rooms and suites. Ranging from 525 to 735 square feet, each Lissoni-designed suite is equipped with a spacious living and sleeping area, featuring custom Lissoni-designed wet bars and residential design-inspired living rooms. For an even more elevated serene stay, guests can opt in for the exclusive Garden Rooms with peaceful views of the Zen Garden.

HIT: Such a stay sounds like just the thing in today’s turbulent macro environment. That said, does what’s going on (especially high interest rates) create opportunities, obstacles – or both?

RU: Higher interest rates and the capital markets slow down makes recaps harder. This may lead to some sales in the next six to 12 months.

HIT: Given that, is your product evolving in the marketplace?

RU: We are going to continue to stay the course with our strategic plan. EAHG’s goal is to acquire a total of six assets over the next two years or so. The markets that EAHG is exploring are Southern California, Nashville, Austin, Denver, along with more in New York and Florida.