NEW YORK and DALLAS—NewcrestImage’s acquisition of 25 company-owned La Quinta properties is the perfect fit for both parties.
The two Dallas-based hotel companies announced the deal this week—the purchase price was undisclosed—as they are both trying to take advantage of current market conditions.
“I don’t think there’s a better time to do this kind of deal than we’ve seen in the past 24 months,” said Mehul Patel, NewcrestImage’s managing director who also serves as chairman of the Asian American Hotel Owners Association. “It’s a pretty unique situation if you can acquire and rebrand. I definitely see a lot of transactions happening soon.”
For La Quinta, the deal serves as a springboard to spur the previously announced divesture of 47 non-core assets. None of the 47 hotels—including the 25 acquired by NewcrestImage—will retain the La Quinta brand once they are sold.
During an interview held earlier this week in conjunction with the 35th Annual New York University International Hospitality Industry Investment Conference, La Quinta CEO Wayne Goldberg said the company is ready to quickly move the assets off the books. La Quinta has now sold 26 of the assets and has contracts in place for all but eight of the remaining properties. The company will use proceeds from the all-cash deal with NewcrestImage to pay down debt, as dictated by financial covenants.
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Mehul Patel NewcrestImage |
Goldberg and Rajiv Trivedi, executive VP, franchise and chief development officer, said the company will ultimately sell all of the properties at a discount because the La Quinta brand will not be continued on them.
“Because the flag is being removed from the properties, the value adjustment is taking place,” Trivedi said. “That will be somewhere around $25 million.”
NewcrestImage plans to convert the properties, which comprise 2,978 rooms, to brands such as Quality Inn, Days Inn, Super 8 and Motel 6, according to Patel. The hotels are located Arkansas, Florida, Louisiana, Missouri, New Mexico, Oklahoma, Tennessee, Texas and Virginia.
“We will partner with Wyndham (Worldwide), Choice Hotels International and Motel 6 to convert these properties to brands that fit the proper location,” he said.
Patel said the companies started working with La Quinta and parent company Blackstone Group during the fourth quarter of 2012. “Finally, in the last 30 days we were able to negotiate the final details,” he said.
The deal brings the number of properties on NewcrestImage’s roster to 37, but its plans include flipping the acquired portfolio by selling it in smaller chunks to individual owners.
“This is a very short-term investment for us,” Patel said, adding that he expects the flip to take place within the next 120 to 180 days.
“There are many people trying to buy their first property and this fits the American dream,” he said.
Patel said the company will have to invest little in the way of property-improvement plans because the properties meet most standards set by the brands to which they will be converted.
NewcrestImage was formed earlier this year when Newcrest Management and Image Hospitality merged. The partnership includes Newcrest Development, a real estate development company; Brightman Construction, a builder focusing on hotel construction and renovation; and Image Hospitality, a hotel management company.
Over the years the combined companies owned and operated more than 120 assets, Patel said. The company is developing eight hotels, including upper-midscale and extended-stay properties in Texas and Oklahoma.
“My passion every morning I wake up is to make a deal,” Patel said. “This is a family business for us. We evaluate every deal very carefully.”
NewcrestImage is owned and operated by three sets of Patel brothers—Mehul and Sanjay, Chirag and Danny, and Yogi and Mital.
The La Quinta executives said they plan to continue to focus their growth plans on expanding its franchising base. Once the remaining 21 non-core assets are sold, it will own and operate 350 hotels while franchising 464 more.
“We feel it is important that we reach a good level in fee-based business because that helps the balance sheet,” Trivedi said.
“We don’t focus on numbers,” Goldberg said. “We will get to 1,000 but that’s not what we focus on because when you only focus on a number, you make bad decisions. We focus on the fundamentals. We see several good years ahead of us.”
Trivedi said the brand has 150 projects in the development pipeline.
“We expect to open 50 new hotels this year,” he said. “The great news for our development platform is that from 2009 to 2013 we have opened 65% new construction and that was during the toughest economic times the industry has seen.”
The executives said that in addition to the U.S., primary development markets include Mexico, Columbia, Honduras and other Latin American markets.