Ennismore, Starwood alumni find new edge

So far, Lifestyle Hospitality Capital Group (LHC) has done a single medium-sized deal. It agreed to buy Dublin-based Dean Hotels for around $400 million. Its ambition, however, is to create a company with assets in Ireland, the U.K., Continental Europe, and the United States. It could quite quickly become a billion-dollar enterprise.

Indeed, sources familiar with circumstances said the London-based general partnership may open a U.S. office in 2024 as it seeks to take advantage of a “window for acquisitions” which, LHC thinks, gives good expansion opportunities over the next 12 to 18 months.

Sources said LHC is interested in freehold hotel properties and offices ripe for conversion, most likely. It is less attracted by new builds as, in its analysis, built assets are changing hands at prices lower than the replacement cost.

Meanwhile, the risk associated with new builds means it’s hard – expensive – to finance construction. Inflation brings doubt into costing equations. Medium-term economic uncertainty asks questions about use and occupancy on completion of a project.

The ‘edge’

Ambitious investors such as LHC, often talk about the ‘edge’ that sets them apart. In the context of investment in hotels, the edge may be may financial. If your cost of capital is lower, your chances of success are higher. The advantage may be operational – offering hospitality which is efficient and appealing to clientele. Ideally, it will be both.

Talk of ‘edge’ is appropriate in the context LHC, the new outfit backed on the Dean Hotels deal by Elliott Investment, the $50 billion activist private equity house, and headed by Keith Evans, formerly of Ennismore and Starwood. Why? Irish rock band U2 are the recent owners of one of a clutch of hotels in Dublin, Ireland, just bought by LHC. Playing alongside vocalist Bono, of course, is lead guitarist known as The Edge.

It is clear that LHC believes its “edge” is its ability to combine financial and operational capabilities in ways adding up to more than the sum of the parts.

Broad expertise

Though relatively little is yet known about LHC, its edge may enable it to cut through on a several fronts. Mere association with the likes of Elliott Investment Management is enough to burnish the credentials of a leadership. Founded in 1977, Elliott is known as among the best-established asset managers of its kind.

Meanwhile, big financial institutions such as Elliott – which had 555 employees at the last count – often have networks which complement the hard financial advantages. They know what assets might be available and what sort of prices represent value. At the same time, they are often able to attract talent – in this case hotel and hospitality expertise.

Though a new venture, LHC’s pedigree means it probably has access to capital at reasonable cost. “More important,” sources aware of the strategy said, “is to convince investors LHC has the ability to increase income from owned hotel assets. And if the income rises, capital value accretion will follow.”

It appears possible that LHC’s association with Elliott is specific to the Dean deal. That said, there’s palpable confidence LHC can gain access to capital from a wider range of sources.

More than capital

LHC is more than a conduit for capital. It is more than an active manager of hospitality assets. It is more than a brand development company, too. It is not quite an operator, but it will, it seems, bring direct influence – and digital expertise – to bear over the day-to-day routines.

Keith Evans, LHC’s founder, CEO and investment committee chairman, has more than 20 years as an investor in real estate, an asset manager, financial architect and corporate leadership. As the LHC website records: Keith has transacted on over $4 billion of hospitality real estate and M&A, having operated in over 25 countries across Europe, U.S. and the emerging markets.

At Ennismore – perhaps best known for its Hoxton brand – Evans, as chief investment officer, helped to create a portfolio of hospitality properties worth $2 billion including, in 2021, the global amalgamation of Ennismore and Accor lifestyle brands and management company assets. Before that he was senior vice president – European Hotel Acquisitions at Starwood Capital; vice president M&A at Kingdom Hotel Investments; and a founder of a hotel real estate fund management team at Invesco.

Lifestyle hospitality

The LHC investment story is all about “lifestyle hospitality” – as the company’s name attests. The hospitality industry has an unfortunate reputation for creating vaguely defined labels. For LHC, however, ‘lifestyle’ hospitality is quite firmly fixed in the wish to maximize the utility of brick-and-mortar assets.

It wants to fill hotel assets with people at rest, play, and work. It intends being a hotelier, a bar-restaurateur, and an office manager. Its ambition is to raise revenue by encouraging individual customers to use the assets as more than just a bed and breakfast. Central to the ambition, meanwhile, is to create operating procedures which ensure efficient service provision across the range of services it provides.

To quote directly from LHC’s website, it wants “diversification of revenue and profit drivers via complementary hospitality businesses, such as co-working, co-living, extended stay and wellness.”

Elliott is not the only investment firm of its type to show interest in hotel investment. In March KKR, the private equity house, announced a first hotel investment in Japan. Funds managed by KKR and Gaw Capital Partners bought the Hyatt Regency Tokyo from Odakyu Electric Railway Co.

Dean Hotels

Financial details around LHC’s Dean acquisition were not disclosed. Market sources suggest, however, that the enterprise value, that is, the sum of the equity and debt, is between €350 million and €400 million ($380 and $434 million). Brands under the Dean Hotel umbrella include The Dean, The Mayson, The Devlin, The Leinster, and Glasson Lakehouse. The U2 connection came via another - The Clarence.

Formal news of the deal was posted on October 31, 2023. “The Dean Hotel has today announced that it has agreed to sell a majority stake in its business to an investment vehicle that is managed and led by Lifestyle Hospitality Capital (LHC) Group and backed by funds advised by Elliott Investment Management L.P. Founder Paddy McKillen Jr. and the McKillen Co. will retain a stake and remain involved in the business.”

LHC says it will search “off-market” channels for future deals and seek to buy assets with “identifiable and correctable underperformance or impairments” at a discount to replacement cost. It said it will “target fundamentally sound assets that have previously lacked capital investment or effective management.” It will design and develop, then manage the assets, and then seek an exit.

It looks like sound strategy. It is up to LHC, now, to turn ideas into action.