Hotel Equities-Greenwood alliance ready to take off

In August 2022, Atlanta-based Hotel Equities launched a lifestyle division, combining its full-service properties with strategic alliance partner Greenwood Hospitality’s 30 full-service independent, branded and lifestyle hotels. Some 18 months later, the partnership is gathering momentum with six properties having been added to Greenwood’s portfolio, two new-builds preparing to open and another eight to 10 deals being underwritten, according to Greenwood Principal Tom Conran.

Even more importantly, Conran and Hotel Equities President and CEO Brad Rahinsky told Hotel Investment Today that at least two portfolio acquisitions are in the works for 2024 and more could follow as they look to make Greenwood the go-to player in that lifestyle, upper upscale and soft brand full-service space.

Driving what could become significant growth was an executed partnership a little over a month ago with a private equity firm out of New York called PPC Enterprises.

Brad Rahinsky, Hotel Equities

“They are effectively going to become our capital arm, allowing us to go ahead and do the things from a capital standpoint that historically Hotel Equities and, in many cases, including our partners, could not execute on,” Rahinsky explained. “We just did not have the wherewithal. We didn’t have access to that type of capital to get into these deals from a sliver equity standpoint, or key money standpoint, continuing the SAAs (strategic alliance agreements) that require recognition capital, and now true M&A. So, all of a sudden, we’re playing in multiple sandboxes that none of our groups could have historically. Now we all have access to that capital. It’s another value proposition for our alliance partners.”

The deal with PPC is a revolver line of credit with four sleeves – key money, sliver equity, SAA opportunities and M&A plays. Rahinsky said the revolver is set up so that once it goes below a certain threshold it can get back filled based on returns being met and the criteria established for its utilization.

“It’s significant in our ability to now participate and compete on projects that only one or two groups in our industry could do from a capital standpoint,” he said. “Now, we stand shoulder to shoulder with them.”

When it comes to portfolio acquisitions for the Greenwood platform, Rahinsky said, along with Conran, that they are “intentional and strategic about who we align and partner with. There’s absolutely a focus to look at current organizations that do play in the space and we think have the ability to come in and tuck in with Greenwood to create something unique, powerful and special.”

Rahinsky said there are “a couple” of tuck-in opportunities to potentially execute on in 2024. “Most important, always the low pole in the tent is the ‘no jerk’ rule. Do we like these guys and are we aligned culturally.”

It’s significant in our ability to now participate and compete on projects that only one or two groups in our industry could do from a capital standpoint. Now, we stand shoulder to shoulder with them.

Brad Rahinsky

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Communication has been ongoing with one potential acquisition target for more than a year and another for about eight months now. “And there are a number behind them,” Rahinsky added. “There’s a natural rhythm to these things and we want to make sure that we don’t break the machine. This collection of partners is special and the minute that we potentially bring somebody in that’s not aligned or a good fit, it will derail what we’re trying to accomplish here collectively. So, we’re careful, we are selective and to some degree, very prejudice about who comes into the alliance.”

Deal terms with Greenwood

To better understand the strategic alliance between Hotel Equities and Greenwood, the latter remains its own entity¸ latching on to the Hotel Equities platform for economies of scale and becoming their full-service and life-style division.

The deal is very meaningful to Hotel Equities as it allows them to pursue more deals in the full-service and lifestyle space that Greenwood is ready to support.

Terms call for a 10-year SAA agreement with Hotel Equities paying recognition capital to Greenwood’s principals to use as they see fit. The partners will split fees earned by Greenwood contracts for the length of the agreement.

COVID, not surprisingly, was the genesis for the partnership as Hotel Equities searched for ways to punch out of the downturn when occupancies swiftly fell from 75% to 5%.

“We figured there were like-minded groups who we were aligned with in terms of culture and what we prioritize,” Rahinsky said. “We started to reach out to some of our colleagues and peers, putting the thesis together about how scale and efficiencies always mattered, but never more so than then. That was the premise.”

Since the two organizations have come together, the model continues to evolve based off of not only the dynamics of the industry from a macro level, but at the property level.

For example, Greenwood is strong in food and beverage and Hotel Equities was able to take best practices and apply them systemwide through its 300 hotels, growing F&B revenue to an expected $100 million in 2024. “It’s dramatically improved not only the way that we operate and optimize our F&B, but for all of our stakeholders, including our owners, to dramatically improve their bottom lines,” Rahinsky said. “With all of our alliance partners, there’s been that type of example through various disciplines that have made all of us better. It is the proverbial steel sharpening steel.”

Tom Conran

Conran points to an increased deal flow for Greenwood. “A great deal of the pipeline is development specific,” Conran added. “We can all argue whether or not the capital sources are available today to support development. But we’re finding that loosening up a bit.”

In fact, Greenwood is getting ready to open a new-build Tribute hotel in Fredericksburg, Virginia, called The Publisher, and in the first quarter of next year a ground-up Autograph Collection hotel on the campus of the University of Michigan.

Inside the numbers

From a performance perspective, while it depends on geographies, Conran said today’s inherent challenge for Greenwood in a number of markets is group activity. “It is coming back a bit, but certainly not back to pre-2019 levels,” he said.

Greenwood continues to forecast ADR growth and does not expect occupancy to suffer as a result. “We need to accomplish that, given the cost of payroll and goods,” Conran said.

Part of driving rate is being food and beverage-centric, as well as service driven, Conran added, pointing to The Farnam in Omaha, Nebraska, being named 2023 Autograph Collection hotel of the year for North America with an intent to recommend score of 94. That score, he said, is among the top 15 worldwide within Marriott’s luxury division.

Rahinsky closed by adding that Hotel Equities is always hyper-focused on performance, including Greenwood’s. “We always say that we get bigger when we get better – the better drives the growth,” he said.