Partners Group believes group business will drive returns

The Teams video call for this story interview dropped almost at the outset, and when Partners Group executive Jason Longo rejoined the call, he immediately suggested that these incidents perfectly illustrate why the New York City-based global PE firm has become so bullish about hospitality. He was emphatic about how a communication gaffe like a dropped call serves as a perfect example of why group hotel business will continue to trend upward as people need to meet face-to-face to more effectively communicate and conduct business. So, investing in bigger, luxury hotels around the world makes so much sense, he said.

In fact, Partners Group is putting its money where Longo’s mouth is having recently invested with Honolulu-based Trinity Investment in bigger, luxury group hotels, including The Four Seasons Las Colinas Resort in Dallas, which recently converted to The Ritz-Carlton Dallas, Las Colinas, and more recently The Scottsdale Plaza Resort & Villas, which is currently going through a renovation.

Then in March of this year, the partnership that began in 2022 grew much deeper when Partners Group acquired a strategic minority stake in Trinity to support its future growth. It is first bringing $500 million to the table to drive acquisition in the U.S. and Europe, and potentially Asia Pacific.

“If you look at that pre-COVID office utilization that doesn’t exist today, there’s a need to get people together. So, when you when you look at that group base and couple it with data that shows an increase in forward group bookings for companies to get their teams together, that’s one of the things we really liked,” Longo explained. “So, we marry that top-down secular view on the future of hospitality with our ability and Trinity's ability to drive value by improving the asset through large CapEx plans, and the operating levels – fixing things that were off a little bit – and that’s what led us to this moment. It is more a focus on these larger group, luxury boxes akin to what we’ve completed today. When you look at Las Colinas and the renovations we’ve done there, and now in Scottsdale, those are very symbolic of like what we’re looking to buy.”

Lobby bar at the refurbished Ritz-Carlton Dallas, Las Colinas

Longo, who is titled as member of management, Real Estate Americas, also pointed to what appears to be inelastic pricing for quality experiences at higher-end products and geographies. “When you couple the demand for that higher quality hotel with high barriers to entry, high construction costs, limited availability of sites, entitlements and permit risk, it’s reasonably easy to be bullish in the hotel space as a long-term holder of value,” he said. “And we see the partnership with Trinity as a way to unlock opportunities and further amplify returns by layering value-add strategies on top of the strong macroeconomic environment for the asset class.”

Open to all possibilities

Longo said there is no floor or ceiling on what Partners Group can do with Trinity Investment. They will both remain very opportunistic. But Longo is definitely bullish on Europe, including portfolios he expects to come to market, and thinks deals in the U.S., while still tight, will offer opportunities in spaces they want to play. They will be traditional five- to seven-year holders, but Longo also said they will be flexible to do what is best for Partners Group investors.

Partners Group is not brand new to the hotel space as it has had situational, indirect ownership spread across hotel segments through various partnership platforms. “We had knowledge of what was happening and were able to track the business,” Longo said. “What we’re really focusing on now is increasing and rightsizing that exposure across all of our investment vehicles.”

We are going to explore acquisitions and management company portfolio acquisitions – really any compelling structure that works today as we build up Trinity as well as our exposure because we’re looking to put out money to the best of our client’s interests. So, if it makes sense for us just to help buy into an operating company or management company, then we’ll do it.

Jason Longo

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Longo, who has previous experience in the hotel space with iStar and Pimco, said Partners Group likes to play the role of the partner and that is what they are doing with Trinity – building a long-term partnership in the sector. “It’s a really different approach,” he said. “It’s this idea of taking it to the next level, looking at real estate as an operating business and then leveraging Partners Group expertise within that space.”

So, how will Partners Group new stake in Trinity impact the pace of dealmaking for the new duo? Longo said Trinity Investment CEO Sean Hehir is “quite aggressive and creative. So, he’s continuing to hunt quite a bit.”

But the primary focus, Longo added, is to create an enduring and growing relationship with Trinity. “We intend to invest the $500 million, but it's going to be on a case-by-case basis,” he said. “There are a lot of things that could factor into dealmaking like market fundamentals, and we’re in no way setting forced targets that we have to hit.”

The partners will explore opportunities globally and has been very focused on Europe recently because of the perceived opportunities seen there. “There are some larger portfolios that are out there facing real issues with their debt and are trying to liquidate,” Longo said. “And we’re going to make sure that we’re not catching a falling knife, that we’re buying good opportunities at good prices.”

More broadly, Longo said Partners Group is open to all possibilities. “We are going to explore acquisitions and management company portfolio acquisitions – really any compelling structure that works today as we build up Trinity as well as our exposure because we’re looking to put out money to the best of our client’s interests. So, if it makes sense for us just to help buy into an operating company or management company, then we’ll do it.”

Longo continued that in the U.S. they are starting to see some of larger, thematic opportunities come to market. “In both the U.S. and Europe, you’re seeing a lot more happen – not off more market, but it takes a little bit longer to hunt it down and then to make it work,” he said. “Maybe there’s some price discovery that has to go on by the seller.”

Partners Group will also invest in the hotel space outside of the Trinity deal as it generally has high conviction to the sector. That said, it will continue to build with Trinity, even looking at opportunities in Asia where they can potentially pull Trinity in, even though the partnership’s first hope is to expand into Europe.

“Sean [Hehir] and the Trinity team have a lot of experience in Japan. Is there a way that we can leverage that expertise and maybe help them expand it to Japan?” Longo asked. “The large group boxes that we target generally don’t exist in Europe and Asia. But ultimately, the theme is still the same – large luxury boxes where we can add value for our clients. We could go in there, see if a new brand is needed and change to the asset in the form of maybe a new F&B outlet, etc.”

While Partners Group has not been operating much as a debt provider, Longo said the Trinity deal does set aside, as part of the OpCo, capital for special situations that need rescue capital in the form of preferred equity or mezzanine debt, for example. “We still have return targets we’re trying to hit for our clients. So, it has to make sense, but especially now being partnered with a group like Trinity who can, if need be, operate or have that expertise to help that hotel owner – I think it’s just a different source of capital versus more hostile and aggressive type lenders… We get approached by people that want to kind of build out that type of platform together with Trinity and ask if we can collaborate and provide a debt service for a much larger scale.”

Fortuitous match

The Trinity deal got its legs after Global Partners did some digging and found its new partner as one of the few best-in-class providers in the large, luxury box space. After that, the two came together when Trinity secured the Las Colinas property and needed a limited partner to secure the asset.

Main pool at the Scottsdale Plaza Resort & Villas

Even more fortuitously, both Longo and Hehir ran into each other on their separate vacations and had the opportunity to get to know each other and their intentions in the space.

“We got a chance to meet each other’s family,” Longo added. “It was really a better to get to know each other and it gave me a chance to sell us and how we could help them grow versus just looking at us for one-off transactions.”

Moving forward, Longo said there is no limit in terms of how long they can hold Trinity. “The key here was really trying to figure out how we could get the best opportunities for our clients, and if this leads to a 10- to 15-year relationship, so be it,” he said. “The individual transactions will still be typically in that five- to seven-year horizon. But in terms of the actual partnership, we hope that goes well beyond the five years.”

While he can’t predict the market, Longo did say if things continue to go as well, as they’ve been going with Trinity, Partners Group hopes to put out more money for its clients. “We’re looking at everything on a risk adjusted basis. If it makes sense for our clients, we want to make sure we get that exposure.”