For Woodmont, it’s development over a clouded M&A market

BETHESDA, Maryland — It’s a challenging time for a smaller company like Woodmont Lodging to acquire hotel assets. So, the company is moving in the other direction: developing several new hotel projects when others aren’t.

“We’re always looking to acquire, but in this environment, we don’t have that kind of captive cash that I wish we did. It’s a challenge for us,” said Michael Blank, principal at Bethesda, Maryland-based Woodmont Lodging. “So, we are doing something a little counterintuitive these days.”

That’s not to say new development isn’t still a major challenge in 2025. But Blank said because of the lack of new supply in most markets, the benefits can outweigh the risks.

“We’ve been working on [the developments] for a little while now and there’s still a lot of potholes that could pop up…  but we definitely believe there is a great opportunity now to be a developer… Obviously. people will tell you there are too many headwinds. But if you can get that hotel open in the next 24 months, there is nothing behind you.”

We definitely believe there is a great opportunity now to be a developer… obviously people will tell you there are too many headwinds. But if you can get that hotel open in the next 24 months, there is nothing behind you.

Michael Blank

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Blank founded Woodmont 10 years ago with Elliott Estes, as both had REIT experience, most recently at Bethesda-based RLJ Lodging Trust.

“One of the things that we thought was really intriguing for us was that there’s a lot of different ways to buy hotels and make money in hotels,” Blank said. “When you become captive to the public markets, that bandwidth of seeking opportunity narrows exponentially.”

The company currently has a portfolio of five owned hotels in North Carolina, Pennsylvania, Virginia and Wisconsin, ranging from a 400-key Sheraton to a 20-key independent. The company has also taken on several consulting clients in the past 10 years.

Blank said the atmosphere is right for Woodmont to pursue new development right now and it’s currently developing in the Chicago bedroom communities of Michigan City, Indiana, and New Buffalo, Michigan. He said the company is also looking into public-private partnerships for the first time in its history for several reasons.

“We’re pushing forward on a couple of these projects… We’re doing something that we’ve never done because a lot of municipalities put out RFPs for deals,” he said. “We’re exploring those avenues because not only does it provide a captive opportunity, but we also know that there will likely be incentives from the city, state, and county that will help make the math work a lot better.”

The opportunities exist in those markets, and many others, Blank said, because of a lack of new supply and demand drivers adjacent or nearby. Just because the markets are small doesn’t mean they can’t command a stronger ADR.

“What people don’t realize... if you look at the average rates of these markets, you may think they are $100, but they are $160-170 ADRs. It’s surprisingly strong,” he said. “We wouldn’t do it if the numbers didn’t pencil, but it was there. These markets don’t have enough good product and the demand is there.”

Woodmont sources capital on a deal-by-deal basis, which can be challenging for a smaller firm, but the money is there, Blank said.

“We’re tapping some interesting sources [for funding] that I have to stay vague on, but there are lenders out there that are looking to invest in urban renewal, and having that public-private partnership provides some credit quality beyond Woodmont,” he said.

Woodmont Lodging owns the Holiday Inn Asheville in North Carolina

Opportunities for smaller deals

Blank said while the larger players put out a lot of capital, many don’t think it’s worth their time for deals smaller than $10 million. That creates opportunities for local investors in markets where they aren’t worrying about potentially divesting the assets in, say, seven years. 

“The lack of deal flow and maybe the potential for more deal flow coming, particularly on the lower dollar size deals, presents a tremendous opportunity for these local, regional players,” he said. “They are waiting for some of these deals to break free. The opportunity is that some of these institutional guys need to recapitalize their portfolio. Maybe their portfolio has lost its value, and they want to get out of these deals… So, assets that may have not been pried away are now starting to get pried away.”

Blank uses Asheville, North Carolina, as an example, where Woodmont owns a Holiday Inn.

“There are a couple of assets in Asheville that a REIT owns. In a different environment, the REIT wouldn’t ever consider selling these assets, but they’re going to come free,” he said. “I guarantee you, the person who’s most likely to buy it is the local person who already owns five hotels, who knows the market well enough to know that they can extract more value than maybe somebody who’s sitting in LA with an analyst who just does numbers and compares pro formas.”

Reasons like that make Blank think there could be a number of potential deals for local investors happening in the next few years.

“You will see a lot of opportunities for the smaller player who quietly has the capital to invest in deals. They may be recourse loans, so [those owners] are more comfortable putting their balance sheet on the line, which means they can get better-priced debt,” he said. “All those little advantages open up the opportunities for the smaller guys.”

Capex clouding deals

Blank said Woodmont is still seeing a bid-ask spread in the market for many deals, especially for hotels that need renovations.

The seller believes that the renovation will cost $20,000 a door. We know that it will cost anywhere between $30,000 to $40,000 a door... That’s really where I’m finding a lot of that disconnect. Is that because they undervalue what capex really needs to be put into these hotels? We’ve had enough experience and knowledge to know that capex kills.

Michael Blank

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“The seller believes that the renovation will cost $20,000 a door. We know that it will cost anywhere between $30,000 to $40,000 a door and that the disruption for that renovation will impact that cap rate from 9% to 7%,” he said. “If the debt is 8%, I can’t afford that deal. That’s really where I’m finding a lot of that disconnect. Is that because they undervalue what capex really needs to be put into these hotels? We’ve had enough experience and knowledge to know that capex kills.”

Blank said the company is working through this right now with its hotel in Asheville and working with the brand on timing and how to execute it.

“Do we execute it in pieces versus all at once? Because both the cost and the disruption in time and the age of that hotel is in Asheville, where it’s already been disrupted, it’s probably not the best use of our capital given the environment we’re in,” he said.

Blank said the expectation was that there was going to be a “waterfall of renovations” because brands stopped telling owners they could delay PIPs or renovations, but the reality is a lot of owners can’t afford it.

“It’s more expensive than ever and the brands can’t afford to lose units when they’re not growing units,” he said. “I am hearing from people that the brands are much more flexible than I think the general perception is that they would be. Particularly if you are performing well enough so you’re not in the red zone and your guest scores are good enough, they’ll give you leeway.”