KSL Capital Partners’ John Ege talks bid-ask spread, Hersha Hospitality,
steering into select-service with Mission Hill, and where the company would
like to invest next.
Editor’s note: Read Part
1 of this interview with John Ege talking about KSL’s pursuit of where the “mass affluent consumer” wants
to stay, its current $2 billion fund and much more.
John
Ege said that the bid-ask spread has narrowed in the current muted M&A
environment, but it still hasn’t gone away.
Ege,
a partner with Denver-based KSL Capital Partners, said while the bid-ask spread
in 2023 was much larger (15% to 20%), that gap has narrowed in the current
environment (think 5% to 10%). He said there’s often creative deal structuring KSL
can do to bridge that gap, whereas making that work a year ago was much harder.
“2023
just had so much uncertainty to it… that there was a significant bid-ask gap,”
he said. “Clearly, with the six investments we’ve made, we are finding creative
ways to consummate those deals. But the bid-ask gap is still out
there.”
We are always looking for opportunities to add value through improved marketing and, often, capital investment to improve the customer experience. With that strategy, we can find deal flow in all types of markets.
John Ege
KSL
invests in travel and leisure in five sectors: hospitality, recreation, clubs,
real estate and travel services. It has already invested billions in the
hospitality sector and recently announced the
closing of its latest fund: KSL Capital Partners VI, LP,
which has approximately $2 billion in capital commitments. KSL has already made
six investments through that fund.
Ege
said hospitality transaction volume slowed significantly last year, and
everyone is in a wait-and-see mode right now. “We
expect [transactions] to pick up in the latter half of the year, especially if
the Fed decides to start cutting interest rates this summer. That could be a
big catalyst for transaction activity.”
Ege
said the private equity company takes a “bottom-up” approach to underwriting
its extensive assets and is constantly looking for ways to add value to the
properties it acquires.
“We
are always looking for opportunities to add value through improved marketing
and, often, capital investment to improve the customer experience,” he said.
“With that strategy, we can find deal flow in all types of markets.”
Hotel Investment Today asked Ege to discuss some of KSL’s acquisitions over the past few years.
Hersha Hospitality Trust
KSL
acquired the Philadelphia-based REIT in late August for $1.4 billion, including
its 25 hotels in New York, Washington, D.C., Boston, Philadelphia, South
Florida, and California.
“It
was a fantastic collection of assets in key gateway and resort markets,” Ege
said. “We thought that we were buying at an attractive valuation and had a lot
of optionality with the portfolio over time in terms of capital investments and
improving the properties overall.”
Mission Hill Hospitality
KSL
formed Denver-based Mission Hill Hospitality in 2020 to make limited-service asset acquisitions
during a distressed time in hospitality. But in the future, Ege said, it “is a
space that we want to be in overall. Historically, one-third of all hotel
transaction volume has been in the select-service, limited-service,
extended-stay space. It’s a big part of the market that we want to be in.”
We’ve seen a bit of a blurring between that and a traditionally branded property... We wanted to ensure we had a vehicle and a management team to invest behind that strategy.
John Ege
Ege
said that the mass affluent consumers ultimately led them to the space. “We
have [traditionally] focused more on resort and leisure markets, but this is a
way to follow that mass affluent consumer, but in some different property types
that we haven’t had exposure to before Mission Hill. We view that as an area we
will continue to focus on going forward, but it’s not a strategic shift in what
we’ve done in the past.”
Ege
said many select-service or limited-service brands have improved in the past
few years, both in brand and property quality. “We’ve
seen a bit of a blurring between that and a traditionally branded property.
Select service has become an increasingly improved customer experience and
something that our mass affluent customers are increasingly choosing,” he said.
“We wanted to ensure we had a vehicle and a management team to invest behind
that strategy.”
Mission
Hill’s current CEO, Greg Kennealey, worked for KSL for 10 years before taking
that position and will remain there even after making headlines this week when he was named KSL Resorts’
CEO.
International assets v. US properties
Ege
said KSL’s strategy is the same internationally as it is domestically. “Our
most recent investment internationally (Soreno Hotels) did target that
ultra-luxury consumer,” he said. “But, some of our other platforms, like
Village Hotels as an example, are very much for a core mass affluent consumer.
And that’s been one of our largest investments internationally. Our approach
will go up to ultra-luxury, but also things that are solidly within that mass
affluent consumer focus.” (KSL
has been rumored to be exploring the sale of Village Hotels over the past
year.)
Davidson Hospitality Group
KSL
acquired Atlanta-based third-party hospitality management company Davidson
Hospitality Group in 2015. Ege said KSL loves hotel operations, and Davidson has
allowed them to have management “in-house” for some of its properties. He said
of the 80 properties that Davidson manages, roughly 15 are KSL investments.
“The
investment there was to grow the company and take advantage of the trends with
brands increasingly choosing to franchise a property rather than manage it,”
Ege said. “But equally important was Davidson’s operational abilities and
ability to unlock a value for us at the property level for our 15 hotels they
manage.”
Dreams Sapphire Resort & Spa Cancun is part of Tortuga Resorts.
New geography for KSL?
When
asked if there are any geographic areas KSL would like to add, Ege again
references the company’s core customer. “One
place that we are looking for additional acquisitions would be in Mexico
because there is this trend with our mass affluent U.S. consumer that is
increasingly choosing Mexico as a destination of choice for warm weather,” he
said.
Ege
said KSL had invested behind that trend in the past with its acquisition of
Apple Leisure Group when KKR and an affiliate of KSL acquired the company from
Bain Capital Private Equity in 2016. Hyatt Hotels Corp. eventually acquired ALG in
November 2021, something Ege was a great investment for all involved.
“We
launched a platform to follow that same trend, but instead of being just a
hotel manager, we actually now have a platform called Tortuga, which is looking
to make property investments in the same types of properties as all-inclusive
resorts in Mexico, targeting largely U.S. customers.”
KSL has many other resort company investments, including Outrigger Hospitality Group (30+ properties in Hawaii Fiji, Thailand, Mauritius and the Maldives), Islamorada Resort Collection (three resorts in the Florida Keys) and Soneva (five resorts in the Maldives and Thailand).