LionGrove, roaring in Puerto Rico, is expanding into the US

LionGrove CEO Andro Nodarse-León said his company has used the booming hospitality market in Puerto Rico to fuel growth. He wants to take that formula to the U.S. Sunbelt and more than triple his company’s assets by pursuing properties in Florida, Texas and Arizona.

Nodarse-León said he thinks Puerto Rico-based LionGrove’s deliberate acquisition method, an owner-operator approach, and its style of aggressively pursuing the local food, beverage and entertainment revenue at its properties can lead to massive revenue growth over the next few years. 

LionGrove’s current portfolio consists of three hotels and resorts in Puerto Rico: the Fairmont El San Juan Hotel in San Juan; the Wyndham Palmas Beach and Golf Resort in Palmas Del Mar; and the Wyndham Grand Rio Golf + Resort in Rio Grand, which the company acquired in June of 2022. The three properties are valued at over $300 million.

Nodarse-León started in the investment banking world at Goldman Sachs in the media and entertainment space. He then moved to the private equity world of KKR on the buying side, focusing on buying companies in the media, entertainment and hospitality businesses.

Wyndham Grand Rio Golf + Resort in Rio Grand

After he successfully starting an education company, Endeavor, which he exited in 2018, LionGrove was born. He said he always planned to build a hotel company because of his interest in architecture, design and entertainment.

Acquisition strategy

Nodarse-León said the company is doing most of its underwriting in Florida and Texas (it’s currently underwriting a property in Dallas and is also interested in the Austin, Houston and San Antonio markets) but is also interested in assets in Arizona. 

He said the company “kicks a lot of tires” in the acquisition process and has a disciplined approach focused on finding mispriced opportunities and not overpaying for assets. Nodarse-León said he’s hopeful LionGrove has a couple of these properties under contract by the end of the year. 

What does he mean by mispriced opportunities? He said that comes from having people from the operations team helping assess and underwrite the assets. 

“We can spot, I think, with great care and lots of discipline, situations where we realize that the asset has been brought to market at a moment of plateau,” Nodarse-León said. 

That could mean it’s been under the same management for several years, its creativity is stifled, or it’s mispositioned in the market. LionGrove’s team may also think the hotel is missing a larger piece of the revenue pie in the food and beverage space.

“The commonality tends to be that there’s been a long period where meaningful capital has now been invested, so the property quality is underperforming, partly because the product has gotten tired… (or there are) opportunities for physical improvements.

We can spot, I think, with great care and lots of discipline situations, where we realize that the asset has been brought to market at a moment of plateau.

Andro Nodarse-León

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“We love it when it’s been the same GM for the last 10 years, doing the same things.”

He said LionGrove is also looking for excess land adjacent to the property for development or an incremental real estate play.

How LionGrove is funding

Nodarse-León said the company uses its own capital for acquisitions at this point and brings in a couple of limited partners for every transaction. 

He said LionGrove’s thoughtful approach and deep capital relationships over 20 years means “there’s a lot more capital available to us, frankly, than good opportunities” right now. 

“You have some serious bid-ask spreads that are being put out there if you’re not a disciplined underwriter and buyer who just wants to grow,” he said. “The ask is $100 million, and you’re like, ‘There’s no way I would pay more than $80 million.’”

While an exit strategy with assets is built into the company’s strategy, Nodarse-León said he doesn’t see any sales happening soon with its current portfolio.

“We have a property that is two years old, that still has probably 30% revenue growth in front of it… and we have the third one that we’ve owned a little longer that has, I think, still a good 25% revenue growth,” he explained.

Nodarse-León said that growing at a fast clip, especially at this early growth stage, is the current plan. He’s targeting 50% to 100% revenue growth as the firm keeps acquiring assets and reaches a $1 billion asset value goal.

LionGrove is an owner and operator in two of its properties (it’s not an operator of the Fairmont San Juan). That model was built into the company as it was founded.

“We think that when you’re an integrated owner-operator, you have the best of both worlds. The level of speed with which you can execute is very different than when you’re not integrated… It’s important to come in with a fresh set of eyes and true control over the property to be able to execute.” 

He said this mentality came from his private equity experience. 

“The deal team is very integrated with the philosophy of KKR, which is: if you buy it, it’s now your baby. Now you deal with it, you own it, you’re integrated with the management team to oversee it. I don’t think the bifurcation of all these roles leads to the best outcomes.” 

Optimistic about Puerto Rico

Nodarse-León grew up in Miami and sees a lot of similarities between that city in the 90s and Puerto Rico’s position right now. Miami was devastated by Hurricane Andrew in 1992 and had a tough real estate market without much development. He said the reconstruction market process after the hurricane put significant capital into the Miami-Dade economy and a cultural renaissance. 

Nodarse-León said he’s seeing the same thing in Puerto Rico right now with some of the top musical artists in the world — Bad Bunny as a current example — fueling a cultural revival to go along with the economic boom in the territory.

You have some serious bid-ask spreads that, if you’re not a disciplined underwriter and buyer, and you just want to grow, that are being put out there.

Andro Nodarse-León

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Speaking on that economic boom, he cites Puerto Rico’s Act 60, a tax incentive code that provides exemptions to businesses and investors that relocate or are established there, as one of the major drivers.

But he also cites Puerto Rico’s manufacturing boom as another reason.

Visitors to Puerto Rico are at record highs, with more coming to the territory in June than in any prior month. 

All of this is great news for the hospitality market there. 

“It’s a very strong performing hospitality market because it indexes to travel. A relatively constrained supply of hotels keeps occupancies very high year-round. ADRs are very high.”

Local F&B (and entertainment) strategy

Nodarse-León said live entertainment anchors the company’s food and beverage activity and represents millions of dollars.

“For the three properties and every property that we will acquire going forward, one of the key core philosophies is to be authentic locally and locally relevant.”

He said that translates to a significant portion of its food and beverage revenue coming from local customers. 

“At all three properties, locals represent a significant portion of our F&B revenue. And when I say significant, depending on what venue we’re looking at, I mean as much as 50% of the revenue.”  

He said having locally relevant entertainment and events like the Miss Universe pageant and Puerto Rico Fashion Week can also benefit the hotel side of the business. 

“Indirectly, it speaks to a psychographic from a guest profile perspective, which is a premium psychographic," he said. "Generally, guests traveling and digging into the happening local properties also typically pay premium rates because they realize it takes effort to create that content. So you’ve seen higher ADR and higher occupancy manifested as a result of this relevance.” 

Nodarse-León said LionGrove’s renovation approach is also helping its bottom line. 

The Wyndham Palmas property was purchased by LionGrove in 2021 and while it never closed, it had extensive renovations and was fully reopened in May. He said those renovations, which repositioned it from a select-service property, have already translated into an ADR that was once in the low $100s, now above $200.