Why RREAF Holdings is beaming about the Sun Belt

DALLAS – RREAF Holdings has a hospitality strategy that works well — drive-to-leisure properties in the Sun Belt.

That has now turned into a dual strategy: an extensive pipeline of economy extended-stay properties that have started out West but will also extend into the Southern U.S.

Greg Perry, senior asset manager, RREAF Holdings

“Our focus is the Sun Belt, which has been a great market for us,” said Greg Perry, senior asset manager for Dallas-based RREAF Holdings. “We’ll continue to invest there. There’s so much to like about the economic and political landscapes we think this is the heyday and will continue.”

RREAF, which also has real estate investments of $4.5 billion in residential, multifamily, student housing, and RV parks, has a portfolio of 14 hotels in drive-to-leisure locations (within a four-to-five-hour drive of a major metro area). Eight of them are on beaches in Florida, Georgia and South Carolina. The beach properties are run by its JV investment partner, Gulf Breeze, Florida-based Innisfree Hotels, while Plano, Texas-based Aimbridge Hospitality runs its other properties.

RREAF takes a general partner position approach to its investments, and its limited partners are primarily high-net-worth individuals, family offices, and retail investors.

“Whenever we launch a new investment opportunity, it goes to thousands of retail investors, and we’ve got some institutional capital, as well,” Perry said.

Hotel Investment Today talked to Perry, who runs RREAF’s hospitality program, about the company’s new development on the Texas coast, M&A strategy, building an extended-stay portfolio, and recent RV park investments. 

Margaritaville resort in Galveston

Innisfree came to RREAF with its latest resort opportunity, a $700 million project along the Texas Gulf Coast in Galveston. The Margaritaville Beach Resort Galveston will be part of a master-planned community and will have 334 rooms and 278 cottages. The resort, scheduled to break ground in the first quarter of this year and finish by 2026, will also have a 2.5-acre water park.

Perry said RREAF and Innisfree have been working on the project for years. “It’s not easy to get as many acres as we did directly on the beach in Galveston,” he said. “All the other hotels, you have to walk across the highway to the beach and we have what will be one of two truly beachfront waterfront hotels in Galveston.”

Perry said the JV partners met with the top brass at Margaritaville to learn more about the lifestyle brand.

“[Innisfree] had an opportunity with this great piece of dirt and what they could do with a brand,” he said. “Margaritaville is not just a hotel brand. It’s not just a blender brand. It’s in everything. It’s one of the only lifestyle hotel brands throughout someone’s life.”

Perry said there have been a lot of hurdles to getting the deal done, especially on the environmental side, coupled with rising construction costs.

“We’ve dedicated about 40 acres of land not to be developed on our site,” he said. “As we’re developing, we’re moving dirt. But, in reality, we’re affecting the environment, and we want to ensure that our footprint is as small as possible.”

M&A strategy

Perry said the current acquisition environment is not favorable for the deals RREAF wants to make, but the company continues to build a land bank.

“It’s been really hard to make a deal pencil on an acquisition,” Perry said. “We’re pushing forward with our development projects. We have terrific partners with equity and debt to make sure that continues to move forward, which I think is a wind at our back during this current cycle.

“We’ll be opening brand new hotels, in what some would probably see as a supply-starved part of the cycle,” Perry said. “We’re well positioned in our development strategy to continue moving forward. But, without a doubt, there’s going to be fewer acquisitions. What we will be acquiring is land on which to build and develop our extended-stay hotels.”

RREAF's first extended-stay property is the Woodsprings Suites Missoula.

But when there’s a “considerable clawback” on interest rates, Perry said RREAF will become active in M&A.

“We have a strong appetite for acquisition, and if we could buy more drive-to-leisure, we will,” Perry said. “We’re open to acquisition opportunities… If there’s a win-win for us, we’ll take a hard run.”

Perry said if he had his druthers, a “win-win” would be a heavy-lift, value-add property on the beach. “That’s where we’ve had really good success, and we sure would like to do it again.”

But Perry said because RREAF is looking heavily at experiential travel right now, those natural resources don’t just stop at the beach. 

“We do have a considerable land bank, and if a good piece of dirt comes up, we’re the type of folks to take a hard look at what that looks like long term,” Perry said. “It doesn’t necessarily have to be at a beach, but it could be a lake or a river, and we are looking for land opportunities to grow our RV outdoor living portfolio.”

One thing RREAF is not interested in doing right now is disposing of any of its properties. 

“Our strategy, considering we’ve owned some of these hotels for almost 10 years, has been long-term hold,” Perry said. “We’re caretakers of real estate, and we’ve returned equity on a few of these investments more than once… We have a lot of investors who frankly don’t want to sell. They like the cash flow, and we’re happy to continue to manage it for them.”

Building an extended-stay portfolio

On the extended-stay front, RREAF opened the Woodspring Suites Missoula in Montana in 2021 and an Extended Stay America Premier Suites in Meridian, a suburb west of Boise, Idaho, last year.

Perry said RREAF already has a pipeline of six more Woodspring and Everhome Suites in and around the Salt Lake City, Utah, area and an additional pipeline of five to seven others in the Sun Belt.

“It’s all about scale on the extended-stay front,” he said. We’ll put together a diverse portfolio of this hospitality product that’s more akin to multifamily than to a traditional hotel, and I think we’ll get a great cap rate spread on it.”

Perry said he wouldn’t be surprised if RREAF had twice as many extended-stay hotels as beachfront leisure hotels in the next five years. He also likes the economy extended-stay segment.

“I think the economy space offers more opportunity. But we’re not married to any one brand,” he said. “We have our preferences… We evaluate the location and take into account how much the dirt costs and what the ADR is in the market. If we can build an upper-midscale [extended-stay] hotel and get the returns on it, we’re going to go down that route.”

Major investment in RV parks

Another sector in which RREAF has made a major investment is outdoor living. Last August, it spent $157 million on a deal to acquire and redevelop five RV parks in the Sun Belt.

Perry said the overlap between the RV and hotel industries is clear. “For a serial hotel owner, there’s not much better than a guest bringing their own room,” he said. “The RV industry continues to surprise me in terms of its growth and trajectory. We like what we have, and we continue to look at RV and outdoor living acquisition opportunities, whether it’s an operating park or a piece of land… We see there’s more meat on the bone in outdoor living.”

The Fairfield Inn and Suites By Marriott Pensacola Beach is one of RREAF's beachfront properties.

Current trends in drive-to-leisure properties

Perry said RREAF is seeing a decline in occupancy at its drive-to properties, offset by an increase in ADR.

“I can understand how OTAs have trained the consumer in America to wait until the last minute to book their hotel,” he said. “But from what we’re seeing, and we’re already here at spring break time, looking at the next 90 days out all through Memorial Day. A good hotel that’s well managed will increase rates going into the date… Room rates will continue to increase nationwide, especially in high-peak season and high-demand locations.”

He also said RREAF is seeing good momentum going into the summer. “It’s going to be a good summer for the hotel industry. ADR continues to grow and, in our inflationary environment, it makes sense,” he said. “Our staff costs more, the muffins cost more, the sausage patties, the pancake machine, everything costs more. I don’t think that will slow down, but you’ll probably see the impact on the GOP. I bet GOP is going to go down for the industry as a whole.”

But Perry said this is where RREAF’s strength as an asset manager comes into play. “[Our] asset management is a big part of being an owner. It’s active real estate management, and it’s operating a business,” he said. “As good as our hotel operating partners are, and as much as they say they’re thinking like owners, we are owners and think like owners. We’re looking out for the long-term strategic interest of the property. From that standpoint, we’re really managing our profits through our asset management team.”