How (and why) NewcrestImage keeps rebuilding its portfolio

Building a portfolio of hotels isn’t easy. So rebuilding a portfolio over and over again should be exponentially harder, right?

Mehul Patel would disagree.

“Every morning, I wake up to do a deal,” said the CEO of Grapevine, Texas-based NewcrestImage. “We don’t have any specific criteria. We were in 37 states and will buy any segment: economy, luxury; you name it. We’re in the transaction business at the end of the day.”

Mehul Patel

Patel said the company has bought and sold 283 hotels since its first acquisition in 2014. Those years of experience make NewcrestImage an expert at acquisitions. 

“That gives us a cutting edge,” Patel said. “We know what we are doing, and we’ve perfected the model over time.”

He said the company is still learning with every acquisition. But that experience does make things like valuations a lot less daunting. “We know that number in the back of our head, for every market and every hotel you could think about,” Patel said. “So the valuation is pretty simple.”

Buying and selling

Knowing those valuations is important for a company that transacts so frequently. NewcrestImage likes portfolio deals because that’s where it finds the value. That means it will buy 20, 30 or 40 hotels at a time, keep 5 to 10 of them and sell the rest quickly (6 to 12 months).

“We’re buying excess and then selling off excess and keeping what we like and rebuilding that portfolio again,” Patel said. “We become an aggregator. We buy many [properties] and then sell the stuff we don’t want.”

A lot of times, when you sell, people are very selective. [They say] ‘I only want to buy this hotel. I only want to buy 5 or 10.’ We’re saying we will buy everything. What we don’t like, we’ll sell. It’s our problem. But we want a discount because we’re buying everything from you.

Mehul Patel

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Patel said that acquisition strategy creates a lot of opportunities. “A lot of times when you sell, people are very selective. [They say] ‘I only want to buy this hotel. I only want to buy 5 or 10.’ We’re saying we will buy everything. What we don’t like, we’ll sell. It’s our problem. But we want a discount because we’re buying everything from you.”

And he says that method makes them unique in the hospitality market. “Nobody wants to buy 90 hotels like we bought last year because who will want to do that? A PE firm can’t do that. A REIT doesn’t want to do that,” he said. “It just leaves guys like us who understand this kind of machine. We’ve built a team who understands buying and selling.”

It also guards against a bid-ask spread for properties. “Since COVID, we’re creating a different value proposition as the buyer… If the seller wants to sell, we can say, ‘Here is what we are willing to do. We can go non-refundable on day one and close in 60 to 90 days. That’s our goal.

“What makes us unique is we like to create opportunity and uncover the opportunity that other sellers haven’t. Or someone who doesn’t have time to uncover the potential of what that property could do.”

Those acquisitions can happen quickly. In January 2022, NewcrestImage sold its entire portfolio to Austin-based Summit Hotel Properties and its management business to Plano, Texas-based Aimbridge Hospitality.

Since then, NewcrestImage has bought 90 more hotels and sold 75 of them again.

He said the company has been very busy in the last few weeks and will continue to be an opportunistic buyer and seller heading into 2024.

So, what makes an appealing acquisition for NewcrestImage? Patel said it’s the kind that might scare other buyers off. He said that of the 90 hotels it had purchased, all had huge capital requirements (between $20,000 to $50,000 per key).

“We feel like there are a lot of hotel owners who are burned out. There are a lot of hotel owners that have debt maturity coming up. They have to invest capital and don’t want to do that,” Patel said. “We’re the perfect buyer for them because we understand financials and can do financial engineering any way we want.”

One hotel that doesn’t fit its current model is the Magnolia Hotel in Downtown Dallas, which NewcrestImage purchased in 2021. It recently announced plans for a $200 million makeover to reposition and rebrand the property into a luxury hotel. Patel said that the purchase came from an emotional place.

“When we had a campus [in Downtown Dallas], I would drive by the Magnolia every day. I said, ‘If I get an opportunity to buy it, I would be the only guy who would buy that.’ I made it my mission to buy the hotel because I love the exterior, the architecture and the history… Nobody would ever have considered buying a large asset [at that time], but we did.”

NewcrestImage recently purchased several Courtyard by Marriott hotels by airports, including this one in Albuquerque, New Mexico.

Investment mix

Patel said NewcrestImage will always be a hotelier but now has its investments split between real estate, public equities, financial institutions, a debt fund and alternative investments.

The company wanted to reinvent itself after COVID and diversify its portfolio. Patel said the company now has an investment mix that is roughly 40% in hotel real estate, 40% in public equities through Summit (it is the second largest shareholder and owns 13% of the company); 10% in financial institutions with its ownership of Dallas-based American Bank and a 9.9% stake in Keller, Texas-based Texana Bank.; 5% in a debt fund through NewcrestImage Capital; and 5% in what it calls alternative investments. That final “silo” varies from its partnerships and stakes in hospitality companies like Irving-based Coury Hospitality (which manages its lifestyle and luxury properties) and Aimbridge Hospitality (which manages the rest). Newcrest also invests in financial, technology and health care startup companies.

“We were in these two silos. And then we created these three silos that allow us to think differently, and now our knowledge base is much wider,” Patel said. “Now we’re able to look at lots of different stuff.”

Patel and his partners acquired American Bank in 2019 when it was a $55 million entity. Now, it’s a $500 million bank. He said it’s been especially aggressive for hotel loans in this current capital market.

“When the market is down, we like to loan money because that’s when everybody is turning away,” he said. “This is a time for us to grow the bank and earn customers who say there were others who turned them down, whereas we helped them out.”

Patel said whatever lending doesn’t fit on the bank side goes to the debt fund, and vice versa. He said the idea is for all the companies to become an ecosystem working together on the hospitality or financial side. 

Partnership with Aimbridge

NewcrestInage is a minority owner and advisory board member with Aimbridge Hospitality, which recently made major c-suite changes with CEO Mike Deitemeyer and CFO Tom Song leaving at the end of November.

Patel said NewcrestImage’s relationship with Aimbridge is very strong. “It has very good technology. But there are always errors when humans are involved,” he said. “It’s a learning lesson, and they’re trying to improve. Every leader who takes a leadership role at Aimbridge makes it better.

“I’m still very positive because everybody needs a player like Aimbridge to run their portfolio. I wouldn’t have bought all these hotels if I didn’t have Aimbridge… I didn’t have expertise in running a hotel in Pittsburgh, Iowa, New York and New Jersey because they were already there. I rely on them to run my assets."

Patel said he sees the partnership growing in the future. “They are our eyes and ears,” he said. “If I say, ‘Here’s 15 hotels we want to buy,’ they would underwrite quickly and tell us what’s going on."

NewcrestImage’s hotel portfolio

On the hotel side, Patel said NewcrestImage’s main segments are select-service and extended-stay. But he also sees lifestyle and luxury business growing through the partnership with Coury. It’s also moved from a regional geographic area centered on Texas to one that stretches across the U.S.

If there’s one segment he would like to be in, Patel said NewcrestImage is focusing on getting into the resort business. He said he would also love to have a resort in Hawaii.

NewcrestImage also expanded outside the U.S. when it purchased a Courtyard by Marriott hotel in Vadodara, India. Patel said the plan is to grow in that country and would love for the company to expand into the UAE. He also said they are interested in Africa for a glamping site.